Fraud is a common threat which everyone is aware of, whether this is in our personal lives or in our working day, the likelihood is that we will all, at one point in our lives, be affected by a fraudulent attack, whether this is in relation to identity, monetary or more seriously, a large data breach, which exposes hundreds or even millions of personal details.
The Annual Fraud Indicator 2016 reported that fraud costs the UK economy £193 billion a year – which equates to more than £6,000 lost per second every day.
If we break this down and focus specifically on procurement, fraud in procurement alone is estimated to be £127 billion, or 4.78%, of the £2.7 trillion of total expenditure that companies and organisations in the UK spend to procure goods and services so they can conduct business.
What is Procurement Fraud?
Every organisation has to procure goods and services in order to run their business operations – whether you are a Research Laboratory in a University who has to purchase pipettes to conduct experiments; an NHS Trust who has to purchase crutches for a patient who has broke their leg or a Local Council who has to purchase grit so that you can grit the roads during icy weather.
Nearly every single employee in any given organisation will need to purchase something so that they can progress and complete their work. This leads to many individuals being involved in the procurement process e.g. Darren from Sales needs to buy a projector so he can present to prospects, Ben from IT initiates the order and Caroline from Finance pays the bill, however as their organisation is so large, they do not work directly with each other and are literally just a person behind an email address.
This is just an example to show how complicated the procurement process can be but there are multiple opportunities for fraud and some of the most common are as follows:
- Suppliers adding additional costs to an invoice, which were not agreed at purchase
- Suppliers colluding with employees to add additional costs to an invoice
- Fraudulent Suppliers and employees submitting false invoices
- Fraudulent Suppliers and employees diverting legitimate payments to themselves
- Providing less, in terms of quantity or quality, of goods or services than what was originally ordered
So what’s the solution to stop all this fraud and money that is being lost?
Unfortunately, there isn’t a quick win and a single solution which will work to eliminate all fraud, the fraudsters are a clever bunch, once they realise we are on to them and start to implement measures to stop them, they find the next loophole and start concentrating their efforts there.
However, there are a couple of solutions which can be implemented, ideally together so as to minimise the risk of fraud to your organisation.
Implement an eMarketplace for your organisation
An eMarketplace provides your organisation with a centralised procurement solution, which can be managed by your procurement team and provides users with their own access to buy products and services. Because your team retains control, you can only allow contracted Suppliers along with approved products and services at agreed prices to be available to everyone.
As every order is then placed through the eMarketplace, you have a record of every order and a purchase order which can then be used to compare against when you receive the invoice.
If the eMarketplace is used as a purchasing system of record, this then stops Suppliers from adding additional costs to invoices as these won’t match the initial purchase order.
Implement an eInvoicing solution for your organisation
Having an eMarketplace helps you to track what has been ordered but the next area which needs to be focussed on is payment.
Having an eInvoice solution in place for your business, only allows you to receive invoices from Suppliers which you are already connected to, so no need to worry about invoices appearing from random Suppliers, which cannot be traced and are then paid, whether these are fraudulent or not.
Working with your eMarketplace records, the eInvoice can be tracked back to a raised purchase order and can automatically check that the invoice amount matches the purchase order amount raised, if all is correct, this can then be sent directly to your finance department for payment. If there is a discrepancy, then this can also be flagged up for investigation by the Finance team.
Either way this saves your Finance team time from trying to find the original purchase order and match the Supplier with what was ordered along with the costs. Remember not all invoices will contain complete information, so may only state what was ordered and how much it costs – if you work in a large organisation, you can’t email everyone and ask ‘Who ordered the projector?’
This also stops Suppliers from adding additional extras into the invoice amount – if you can track this back to the original purchase order, you can see what was agreed and ordered so you don’t need to pay more than you should.
Fraud – the Final Frontier – (not quite)
Whilst fraud is not the only concern for procurement professionals, it is something which is a cost for organisations (a combined £127 billion for everyone), so surely if we can look to make our procurement processes more rigorous and remove the opportunities for purchases and payments to be made off the process, this will benefit everyone involved – apart from the fraudster of course, but at the end of the day, they will just move onto the next thing once their activity has been spotted and measures have been put in place to stop it.
We must all work together, to share our experiences where we encounter such activity, share best practices to reduce our losses and look to regain control.
By Richard Porter, Business Development Manager
Richard is a Business Development Manager at Science Warehouse. Richard works with Financial Directors, Heads of Procurement and pretty much anyone who will listen! The sectors that Richard manages are Housing, Local Authority and Government sectors. He works with organisations to identify their pain points and enable them to drive efficiencies and bring transformational change as they look to deliver better cost management.