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Retailers taking more of an interest in their procurement fraud risk

Being a victim of fraud can be devastating for any company, but even more so in the current economic climate where no organisation can afford to lose valuable revenue. By Helen Dickinson

GENERAL MERCHANDISE

Retailers taking more of an interest in their procurement fraud risk

Being a victim of fraud can be devastating for any company, but even more so in the current economic climate where no organisation can afford to lose valuable revenue. By Helen Dickinson

However, it seems that management teams within retail and consumer goods businesses are now taking more of an interest in their procurement fraud risk.
Given the nature of how companies in the sector operate, with a large number of complex supplier relationships in place, it will come as no surprise that they are particularly susceptible to this type of fraud.

And there has been a massive increase in “big ticket” procurement fraud in the UK, with more cases coming to light over the past two years than in the previous eighteen years combined.

In addition, a study by the Association of Certified Fraud Examiners (ACFE) found that procurement fraud accounts for half of all fraud losses, while estimating that a typical organisation loses a staggering 7% of annual revenue due to fraud and abuse.

Of course, the reason for such alarming figures could be, at least in part, down to better detection being in place and more cases being uncovered.  However, they certainly help to underline the message that having the right systems and processes in place to tackle this is absolutely essential for businesses.

There are basic systems and controls that all businesses need to have in place to protect themselves, as well as telltale warning signs to be aware of.  

Having proper procedures in place, such as ensuring purchases over a certain amount are jointly signed off, receiving a minimum of three quotes, having a formal tender process in place and a separate procurement function from the budget holder are essential.

Rotation of team members around different areas of the purchasing function is also a sensible precaution and if suppliers which provide a completely different type of product then follow for no apparent reason this can be a sign that something is amiss.

A common systems failure includes a lack of segregation of duties within purchasing teams, and if budget approval, supplier selection, contract negotiation, receipt of goods and services, and invoice approval are all being carried out by the same group of employees, a business can be open to payments being made where goods have not been received.

And while non-compliant or “maverick” buying might simply seem to be a shortcut round the system, it can also be a symptom of a serious problem such as phantom buying or hiding false suppliers.

The bottom line is that organisations need to know exactly who they are working with through well-defined procurement processes.  A recent poll of organisations in consumer markets companies, carried out by KPMG, looked at prevention and detection of fraud and the overwhelming majority of respondents (82%) have enabled audit trails and a well-defined system access control policy to ensure they know which employees are processing transactions.

However, 30% of those surveyed admitted that their processes need improvement, while 33% stated that the procurement function itself is primarily responsible for the management of fraud and misconduct risk within procurement processes.

So, while awareness of the problem might be half the solution, there’s still plenty more to be done in the fight against procurement fraud.

Helen Dickinson is head of retail at KPMG

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