Supply Chain Solutions No.35 – Procurement Fraud

Sourcing from Asian suppliers generally leads to various ways to incentivise the sale which some believe is a regular part of business, but others may say fraud. Greasing palms to garnish a business deal is an age-old affair globally, is it ethical no, but it happens regularly. Western business on the surface cleaned up bribery and corruption years ago but in Asia, it is still making people wealthy.

Through experience, on a procurement level, there are two types of people who engage in personalised incentive deals resulting in a commission or bribe, the person who thinks they deserve it and other being the one who can truly control it. The person who believes they deserve it will quickly get caught, but the person who controls it and makes it their personal mission managing all facets of the procurement process and delivering objecting may never get caught. Perpetrators usually become unstuck when relationships become challenged, or there is a quality failure.

Below are some examples of direct and indirect procurement fraud in the workplace;

1. Nominated Supplier Signing Bonus
2. Nominating a friend’s businesses and receiving a share of the profit
3. Owning a non-disclosed business and earning a profit
4. Set commission on every order from nominated vendors
5. Red Envelopes are given out to staff mainly at Chinese New Year or TET
6. Engaging in excessive entertainment
7. Receiving small gifts from a vendor on a continual basis
8. Vendors paying QC transportation, food and accommodation charges and the QC claiming the receipt back to the company
9. QA, QC & Ethical auditors receiving bribes to approve processes, services or goods
10. Staff ordering more samples than required and selling through their own brick and mortar or online store
11. Claiming fake invoices

To minimise chances of fraud in your organisation ensure there is a robust signoff process for any new vendor, allowing a single person to sign off on bringing a supplier onboard will allow a greater chance that unscrupulous behaviour will occur. It is suggested that sourcing (the vendor owner), quality assurance, ethical compliance-CSR and finance must approve all vendors.

Where a syndicated fraud occurs involving several departments, it may be difficult to catch the people involved, payment authorisation and matching goods received to products sold invoices will further safeguard any large scale fraud. This will greatly depend on the structure of your organisation.

ID Global Concepts are experts in supply chain management. We add value to your supply chain through consultancy or management contract to ensure the business has the best practice systems that are the right fit for your business, customer and meet your value expectations.

If you would like to learn, please email us at info@idgc.co or visit our website www.idgc.co

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