Updated: Aug 21, 2021
When an organisation takes steps to tackle procurement risk whether it is procurement fraud or corruption, quality or health and safety risk from substituted or counterfeit products, one of the first considerations in the planning process should be how do we stop these risks at the front door.
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How do we stop a vendor from transferring their risk into your organisation or increasing the opportunity of identifying a fraud or corruption risk at the onboarding stage?
As part of initial planning, does your organisation assess the vendor onboarding process to establish if they are obtaining the correct quality and quantity of data to make a proper assessment of the vendor risk?
Common areas that are introduced as part of the vendor risk assessment may indicate that there is an increased risk from procurement fraud or corruption include conflicts of interest checks, a vendor’s ability to perform the contract, vendor visits, company financials, company formation dates, and whether it is it a new company and having sight of their anti-fraud policy and procedures.
In addition to the standard checks and to strengthen the onboarding process a number of additional questions should be asked to assess the level of procurement fraud and bribery risk that a vendor may if approved, transfer to your organisation:
Are you able to check new vendor details including executives, and shareholders against other suppliers for conflicts of interest and bid rigging risk
Are you able to check new vendor details against staff and consultant information for conflicts of interest?
Do you contact a vendor's previous clients to confirm their contract performance?
Are you able to visit new vendor premises to verify the scale of their operations?
Are you able to visit a new vendors premises to verify supply chains, quality of goods and materials including counterfeit or inferior products
Are you satisfied that the vendor's management can protect your organisation from child labour and modern slavery risk in their supply chain?
Can you verify a vendor’s financial security and their ability to complete the contract?
Do you confirm a vendors formation date with how long their company has been trading
Can a new vendor show proactively how they mitigate fraud and bribery risk in their company and supply chain?
Do vendors have their own ethics training or do you provide them access to your training before contracts commence.
The vendor registration process should always be under review particularly where a supplier risk is identified within contract management. If it is a significant financial or performance risk, do you need to go back to the vetting process to verify the integrity in the onboarding process and how a vendor got through the vetting process in these circumstances?
The cost and reputation damage of a subsequent investigation where fraud and corruption are identified may be significantly more expensive than the costs involved in ensuring that you have a strong onboarding process is in place.
When an organisation takes steps to tackle procurement risk whether it is procurement fraud and corruption risk, quality or health and safety risk from substituted or counterfeit products, one of the first considerations in the planning process should be how do we stop these risks at the front door, reducing the potentially significant cost of organisation checks and balances, investigations and resource response where risk is identified.
If you are able to answer these questions during vendor onboarding do you think that you will be able to measure the levels of reduction in fraud and financial loss.