Advance Payment Risk: The Importance of Procurement Controls

Updated: Sep 30, 2020

There are many ways in which an illicit payment can be hidden. In its simplest terms where it has been agreed to facilitate the award of a contract, the bribe payment can happen before or at the time of award or can be given from the profits during the lifetime of the contract, specifically a percentage of the profit.

In organisations where there are consistent urgent requirements and 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 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.

In some regions globally, it appears to have become more common for organisations 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 facilitated, specifically incorporated into the advanced payment and handed out as a cash by the supplier. The illicit payment is now hidden because of the procurement route used, the lack of information generated and the method in which the payment is made.

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

  • Does the 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?

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

The importance of organisational leadership recognising the benefit of having trained procurement professionals and the management and compliance of procurement procedures can never be underestimated to protect the revenues of the organisation.