Updated: Jul 31, 2020
An introduction to a series of articles that will highlight the typologies of procurement fraud and the insider threat, in many cases to understand the simple nature of the fraud and how, with education and the introduction of compliance with organisation procurement and ethics procedures in a large percentage of these cases the fraud wouldn’t have happened.
There can be many factors that help facilitate fraud or influence an organisations ability to identify and mitigate the fraud and corruption that they are being targeted by. What is essential in all of this is that as individuals and as an organisation that we learn from this, to understand the methodology of the fraud and the internal control mechanisms that were manipulated or removed to allow the fraud to happen.
The unethical standards of one individual can in some cases destroy a company. In a number of cases that will be highlighted within the series, it’s the most trusted person in the organisation or the most unlikely person because of their quiet nature that goes unnoticed that can cause significant financial loss and reputational damage to the organisation.
For individuals working in compliance, there is I believe limited value in understanding the external factors and psychology that may influence a person towards crime and an individual’s justification to themselves and others for committing the act that will never be known until after the fact. The only thing that we can positively influence is their opportunity to commit the fraud in the first place.
THE SCOPE OF FRAUD
It is key to understand the scope of fraud when we are looking at risk mitigation and control measures. An organisation can have an internal fraud where a member of staff influences procedure to acquire a company asset, as an example. They can also have organised crime where individuals, usually within different areas of the business use their positions not only to hide the fraud through the creation of false paperwork or entries but also abuse their entrusted position within the company, as an example, to manipulate financial data or use company vehicles to remove organisation assets.
The external risk can be the same, either as an individual company attempting to commit fraud or can be organised. This can manifest as bid rigging or price fixing. The biggest risk with the external fraud however is if they have the support of an insider, who understands the control weaknesses within the organisation that can manipulate the award of a contract or in many cases dishonestly sign off for the receipt/use of materials that they know are inferior.
POSITION OF INFLUENCE
When we understand the scope of fraud, one of the next questions should be who can influence the procurement process and do we understand where procurement starts and ends. When we understand the scope of fraud, the typologies and who can influence the procurement process or large scales projects such as infrastructure or oil and gas, we then get to understand that there are hundreds of ways in which procurement fraud can be committed.
When looking at the organisations capability and individuals responsibility that are directly or indirectly involved in some part with the acquisition of goods, works or services, once mapped out you suddenly realise that a person’s opinion in the right place can influence a decision maker.
The series of insider threat cases will hopefully enlighten readers to the risks within their own organisation or the environment in which they work and will hopefully as many have commented on training courses that once armed with this knowledge that it made them more suspicious of behaviours and decisions that are being made.