Top 10 Questions to Reduce the Likelihood of Importing Vendor Fraud Risk
Updated: Aug 29
The cost of prevention is far less than the cost of fraud. Investing in robust supplier risk mitigation measures is a wise financial decision.
Good Governance cannot remain merely a philosophy. Concrete steps have to be taken for realising its goals
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.
How do you 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 it is obtaining the correct quality and quantity of data to make a proper assessment of the vendor risk?
Introducing a consistent approach to vendor risk assessment as part of the onboarding process may help identify 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.
Create a culture of accountability where everyone takes responsibility for detecting and preventing procurement fraud including your suppliers
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:
KEY QUESTIONS
Are you able to compare new vendor details including executives, and shareholders against other suppliers for conflicts of interest and bid rigging risk
Are you able to match new vendor information against staff and consultant information for undisclosed 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 vendor's premises to verify supply chains, quality of goods and materials including counterfeit or inferior products
Are you satisfied that the vendor's management take action to 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.
VENDOR FRAUD RISK REVIEW
The vendor registration process should always be under review and given consideration of an insider threat. It should also be reviewed where a supplier risk is identified within contract management to ascertain whether there has been impropriety in the awarding of a contract and/or the onboarding of a vendor that allowed the award.
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?
DATA MANAGEMENT
Once you have a process in place to obtain this information, how do you better use this data and build on this approach. To support this approach, additional areas to consider within risk identification and mitigation could include:
Building a culture that includes suppliers where open communication around risk and current trends are discussed.
Hotline reporting within contract management to help facilitate reporting of irregularity within.
Using the available information as part of your approach to risk assessment.
Frequency of supplier audit programmes
CONCLUSION
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 better measure the levels of reduction in fraud and financial loss.
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