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The Hidden Threat: Manipulation and Abuse of Payment Control Measures

Updated: Nov 3

Do you have adequate financial control measures; Do you test your payment system for an insider threat. It is the insider that recognises the compliance weaknesses in organisation procedures and the gaps in control measures, so do you use trust as a control measure, and are you willing to take the risk that your staff won't defraud your organisation?

Hidden threat of corruption

Do not be deceived: bad company corrupts good morals


There are many ways in which an illicit payment can be hidden. Procurement corruption can take many forms where it has been agreed to facilitate the award of a contract, the bribe payment can happen before or at the time of award, can be given from the profits during the lifetime of the contract, that can include an agreed percentage of the contract value.


URGENT REQUIREMENTS

Do you consider how to prevent corruption in procurement? In organisations where there are consistent urgent requirements or short deadlines for goods, works or services to be provided it becomes much easier for individuals to request a bribe because there is always pressure on an organisation to relax the procurement controls and introduce direct award contracts rather than tender the work to speed up the process.


Individuals within an organisation that can influence the procurement process will always know where the gaps are in the controls regime and how to exploit it. Fraud and corruption become much easier where there is no documented contact with suppliers or new vendors, where there can be a lack of visibility of individuals contact, communication and relationship and an environment can be created where an individual's corrupt behaviour is hidden and where allegations are made about this behaviour there is limited ability to verify these suspicions or allegations.

ADVANCED PAYMENTS

In some regions globally, it appears to have become more common to use advanced payments for suppliers to expedite urgent requirements, that can on average amount to between 50 to 100 percent of the contract value. However, it has been noted that in many cases the procurement isn’t urgent, and it has become custom and practice to use this method of payment with certain suppliers.


Where this method of procurement and payment is common there is an increased risk that a bribe payment could be requested, specifically incorporated into the advanced payment and handed out as cash by the supplier. It also makes it easier for fictitious requirements to be created and payments diverted or for suppliers to make off with the payment without providing goods, works or services. The illicit payment in many cases is hidden because of the procurement route used, the lack of information generated, and the method in which the payment is made. This is particularly relevant where there is no consistent approach in the verification of completed works or services and that quality standards or specifications have been met?


Organisations that have a high volume of procurement and invoicing and have limited staff to manage these outputs can create a situation where checks and balances are missed or not carried out because of excessive workload. As an example, at first glance it may look like individuals in finance who approach such payments may be involved but in fact have an excessive workload or pressure to approve payments that means scrutiny or invoices and supporting paperwork may be reduced.


CHANGE OF BANK ACCOUNT DETAILS

There are many justifiable reasons why a supplier would change their bank account that might include something as simple as bad service from a provider. Organisation's when assessing the risk within financial systems, regardless of the dual controls in place to change bank account information should annually assess the level of these changes and use a data analysis approach to determine whether these changes were legitimate or to corruptly divert funds.


CONTROL MEASURES

A very simple bribery method, however, this risk can be mitigated by the introduction of procurement controls and a risk management and compliance approach, specifically:

  • Does your organisation have a published single source procurement policy and procedure?

  • Do the procedures define the circumstances in which advance payments can be used?

  • Does your organisation have a single source justification procedure?

  • Are these procedures followed?

  • Use proactive data analysis to verify which companies regularly receive advanced payments. Are they justified or is there a pattern of non compliance with the policy?

  • Are these procedures audited for non compliance?

  • Do you conduct consistent data analysis on finance and procurement systems?

CONCLUSION

Although an organisation should have ethics and anti-bribery policies and procedures including a hotline that will allow suppliers the opportunity to report a bribe request, it is only when you introduce and follow procurement and finance policy and procedures that you have a greater opportunity to mitigate bribery risk and introduce a more robust compliance programme.


Does your leadership recognise the benefit of having trained procurement professionals, that the management and compliance with finance procedures can never be underestimated to protect the revenues of an organisation. Do you think that introducing procurement procedures to make things simple or speedier will have a negative impact on your organisations bottom line.


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