What do you do to detect procurement fraud in your organisation?
What sorts of checks and analysis do you do to prevent fraud and how often do you do them?
Aside from all the useful advice mentioned above you can also use a statistical tool called Bentham's law (see https://en.wikipedia.org/wiki/Benford%27s_law), it can detect unusual spend patterns and has been used as evidence in fraud cases in the US. it pretty simple to do and looks at the distribution of the 1st digit of a cost, the theory being that there will be more invoices beginning with the number 1 (£10, £100, £1,000, £10,00) than there will with 9 ( £90, £900, £9,000), where fraud occurs perpetrators subconsciously disrupt the normal pattern of distribution which can commonly be seen as a anomaly in the distribution curve
Interesting coverage here from the Economist:
Basic financial prevention checks as follows:
1. Review your financial controls at appropriate intervals and do so critically, keeping them up to date.
2. Segregate duties – do not allow only one or two people to be in charge of all aspects of your financial controls.
3. Make sure all the separate parts of the financial records agree with each other. Reconciling bank statements with invoices, receipts, purchase and payment authorisations can often help to identify fraud at an early stage.
4. Keep a register of valuable fixed assets and inspect the them periodically.
5. Ensure that electronic or online banking arrangements are secure and are protected with dual-level authorisation.
6. When recruiting staff – especially those who handle the finances - make appropriate background checks and take up references.
We've written some algorithms (including Benford's law) that monitor procurements in order to identify high risk activities in procurements, specifically for cartels. Is anyone else using this sort of approach, where they can monitor every procurement?
I think that clear segregation of duties with a strong delegated authorities matrix and good MI should be enough to get you started...
within a procurement context, the following are indications, that might appear on the cheater
- He does not take leaves,
- He does not delegate responsibility
- Alway he is worry, and isolated.
- He speedup some supplier payments
- He have strange and not standard procurement behaviors
Also, the procurement corruption, is not easy to detect, and may take long time of investigation,
finally, please add to your 6 points of your basic financial prevention
- Rotate staff each two years, for different supply chain roles
Aside form putting controls in place in the first instance, Benford's law can be used to detect unusual spending patterns (see https://en.wikipedia.org/wiki/Benford%27s_law)
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