Supply Chain Solutions No.41 – Reducing Procurement Fraud

Managing the purchase order process through raising, delivery receipt and invoice processing is critical to reducing fraud.  Fraud is a supply chain related category that should not be ignored, as reported in the Kroll Global Fraud Report 2013, and has affected 70% of all companies surveyed.  Procurement fraud is a key contributor in those companies affected.

Non-arm’s length transactions that are a conflict of interest are common fraud in Asian enterprises and exist in many forms; procurement is one of those.  Three-way matching is a way to reduce buying fraud risk.

Three key steps should be observed;

  1. Purchasing issues a purchase order based on a non-inventory or inventory item pre-established in the ERP. Purchase orders are raised based on the standard price, if there is a variance standard to actual price reporting will create a purchase price variance that can easily be monitored.
  2. Goods receipted must be received against a delivery receipt confirming the exact quantity and date received. The physical goods received are equal to the item on the purchase order.
  3. The invoice details and price are checked and confirmed by purchasing. Finance validates the invoice and delivery receipt against the purchase order before making payment, ensuring a three-way match.

The three-way matching system depends on no one person is responsible for all three processes, the objective been an individual is unable to raise a purchase order, receive it and approve for payment.  Allowing an individual the ability to manage all three process leaves a potential fraud risk that can easily be avoided.

Three-way matching will not eliminate procurement fraud only reduce the possibility; there is still potential kickbacks or commissions preloaded in the price, collusion between in-house departments establishing fake items, issuing a sales and purchase order, receiving and re-invoicing.   What it does is stop any non-sophisticated fraud and keeps the process transparent.

ID Global Concepts are experts in procurement management on the ground in Asia and cross-functionally globally. We add value to your procurement process either through consultancy or management contract to ensure your business is using the right buying method that will meet your value expectation.

We have delivered apparel and accessories to numerous retailers globally over the last ten years;

Macy’s, Urban, Sears, Marks & Spencer, Myer, Kmart US & Kmart Australia, Dunnes Stores, Debenhams Monsoon Accessorize, Asos, Witchery, Brown Sugar, RM Williams, Coles, Chloe, John Lewis, Disney, Next, Firetrap, Lonsdale, Postie, ASDA, Harris Scarf, River Island, Tesco, Woolworths, Walmart, Glassons, Babies’R’Us, New Look, Target US & Australia, Primark, David Jones, Best & Less, Sophie, Yakka, Top Shop, BHS, Burlington, BigW, Oasis, JayJays, Blue Illusion, Driza-Bone, Just Jeans, Volcom, House of Fraser, Pumpkin Patch, Suzanne Grae, Pelaco, Laura Ashley, Sportsgirl, Ted Baker, Truetex, TableEight, French Connection

If you would like to learn more or wish to discuss other supply chain challenges, please email us at info@idgc.co or visit our website www.idgc.co

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