Conflicts of interest lie behind many cases of procurement corruption and indeed other “corruption” in its widest sense. Often, these are not the highest profile or most serious examples – compared to envelopes of cash, swiss bank accounts and expensive prostitutes.  But if the practice of ignoring conflicts of interest (or covering them up) becomes pervasive in an organisation or a country, it can be corrosive and very damaging in the longer term.

A UK government minister, Robert Jenrick, is currently in the public eye because of a planning decision he made that favoured billionaire Richard Desmond. The two men had met at a dinner and chatted not long before the decision was made.  Jenrick is now facing more claims that another conflict of interest cropped up when he had a ministerial meeting with a “family friend” who had a financial interest in the future of a rival mining project that Jenrick was overseeing as minister.

In the procurement world, conflicts of interest can lead to bad buying when a supplier who shouldn’t win a contract does so, or is given a favourable contract, because someone on the buy-side has a vested interest in that happening. Often it is not overt bribery, but is based on relationships, nepotism, friendship, enjoyable dinners, invites to corporate events or Christmas presents. The dividing line between real corruption and poor judgement is very thin here, so we need to make sure that any conflicts are always declared and managed.

Back in my days as a procurement director, I had to ask our CEO, who had recently left Accenture, whether he still owned equity in the firm, as we were running a competition for a major contract for which Accenture was short-listed. If he did, then he couldn’t play any part in the selection process. I think he was genuinely surprised and a little offended by my question. But even if he was a cross between Jesus, Gandhi and Nelson Mandela in his personal ethics, it is how others perceive matters as much as the actual risk. And really, if others perceive a conflict, then it probably does exist.

There was a “hushed up” case (my freedom of information requests didn’t get very far) in the NHS not long ago where a small group of procurement executives gave contracts to a firm they controlled, which was also providing services to their organisation.  They may have felt those services were genuine and outside the scope of their “day jobs”. But was there a conflict of interest? Too right there was, and everyone could see that instantly.

And here’s another interesting issue. If I am involved in the decision to award a particular firm a contract, then six months later I join that firm on a huge salary, is that OK?  Many might say “no it isn’t”. But it happens all the time; this was an NHS example when an executive joined Deloitte shortly after the firm had won a large contract from his organisation.  There are of course many cases in the private sector as well as the public. 

And let’s face it, this starts from the top. The UK’s ex-chancellor George Osborne got a part-time job worth £600,000 a year for doing some pretty unspecified work for BlackRock, the world’s largest fund manager. But only months earlier, he was ultimately responsible for regulating the entire  financial services industry in the UK. Corruption? Maybe not. A retrospective conflict of interest? Absolutely.  It is the same with staff in the military who jump from managing contracts with big defence and services firms to working for those businesses.

My advice is to make sure your organisation’s HR and procurement policies make it very clear what defines a conflict of interest, and how people must act in that situation. Ensure every employee understands the rules and what they need to do.  And, by the way, “writing it down in a book” or sending a form to some admin person in HR or procurement is not a strong enough policy (just as it isn’t enough for declaring gifts or corporate hospitality).  Do it properly, then if anyone has a conflict, you can take steps to ensure they are not involved in decisions.

And of course, there is more on this in my book, Bad Buying- How Organisations Waste Billions Through Failures, Frauds and F*ck-ups, to be published in October by Penguin Business.

Yesterday, The Times published a long article looking at how PPE (personal protective equipment) has been supplied to NHS hospitals and other locations during the pandemic. Unlike most articles on this topic, it presented a rosy picture – well, rosy at least once the Army and Clipper Logistics got involved. Indeed, it could not have been more positive about those two organisations if it had been written by their PR people.

Everything was great – everyone got all the PPE they needed, the famous eBay portal worked fine (it didn’t), and the Army plus Clipper rescued the incompetent NHS procurement system. It is a little surprising to see one part of the public sector dumping so publicly on another, but perhaps that is a foretaste of spending battles to come in the UK government through the recession, battles which the NHS is likely to win over the armed forces. Perhaps the military are getting their retaliation in first?

Anyway, the aspect of the article that grabbed my attention was the revelation that the choice of Clipper was made by Neil Ashworth, “a civilian working in the British Army’s Engineering and Logistics Staff Corps and a former supply chain director at Tesco”.  It is not clear quite how and why Ashworth was involved with the Army but The Times says “It was then that the Ministry of Defence made contact with Mr Ashworth to get the ball rolling. He recommended Clipper, a fast-growing logistics group that specialises in online retail, to his MoD contacts and they told him to recruit the company”. Ashworth then called Tony Mannix, the boss of Clipper Logistics, and off they went.

I suspect Ashworth was also behind the choice of eBay for the PPE portal, based on comments made by Eb Mukhtar, the army reserve logistician who has been the public face (or at least the public name) behind this exercise up to now.

But how did Ashworth choose Clipper? Was there an analysis of alternative options? Is there any audit trail to support that decision? Did anyone ask whether Ashworth personally had any conflicts of interest here?

Now I’m not suggesting for a moment that the team should have taken 3 months to run a formal tendering exercise. Neither do I think that Clipper slipped Ashworth a brown envelope stuffed with currency – his cv is impressive and he clearly knows this area.  But even in these “difficult times”, we need to be on our guard against fraud and corruption in its widest sense. And my definition of “corruption” includes corruption of the proper process.

So even when there is urgency, we need to know that public money is being protected. In this case, we need some transparency about exactly how these decisions were made, and what checks and balances were in place. The same applies to some of the rather odd looking contracts for PPE itself that are emerging.

In my new book, Bad Buying – How organisations waste billions through failures, frauds and f*ck-ups”, (to be published by Penguin Business in October), there are some amazing stories of fraud and corruption. But the sad fact is that it can spread quickly if there are opportunities or process weakness, as it did in the US Navy during the “Fat Leonard” affair. Or as it has in South African public procurement and through their government owned businesses, to the point where the country is close to being declared a “failed state”.   

The reason it spreads like a virus is explained in my book – here is a key excerpt.

“Finally, this matters because it has wider effects beyond the organisations directly involved, as  corruption can distort normal business and even social practices and priorities. For instance, if firms know that bribing government officials is the best way to win public contracts, a firm will focus its resources and efforts into doing that effectively. They will worry less about writing a good bid, developing better products or services or performing the work well. 

The knock-on effect is that decent firms start thinking “what’s the point”?  They either move over to the dark side and start on the bribery route, or withdraw from the market, customer or even country altogether. This can lead to a downward spiral, where supplier performance gets worse and worse, and corruption becomes endemic…”

You might think that we are somehow immune from that unhappy situation in the UK and other developed countries. We are not. If firms start thinking that “who you know” is more important in terms of winning government contracts than “what you can deliver”, then we will be on a very slippery slope. And that’s why we shouldn’t absolve those involved in public procurement during these “difficult times” from the need for process, propriety and transparency.   

Unfortunately, fraud and corruption are common in the business world, including in many large and well-known firms, as well as in governments the world over. Literally every day you could find a new story breaking that highlights an event of that nature, whether it is thousands of pounds, dollars or euros or millions involved. 

Issues related to ‘buying’, in its widest sense, probably represent the single biggest category of fraud and corruption globally. It is not hard to see why. When we consider fraud, it is clear that criminals trying to make money need to focus on where that money is. And buying (procurement) transactions account for most of the major spend areas for businesses and government bodies.

There are alternative ways you might look to extract money illegally or improperly from corporations, such as blackmail, or banking and investment frauds. There is some non-buying-related fraud committed by employees – we’ve seen examples of senior executives putting through pay rises for themselves that weren’t properly approved, for instance. But buying from third party suppliers accounts for trillions of dollars’ worth of trade annually around the world, so it is not surprising to see a whole range of fraud and corruption cases based around those processes.

Some of the low-level frauds are almost comical. The UK NHS suffered from a senior manager who extracted money by creating false suppliers, in order to fund her own activities as a horse breeder. The need to purchase expensive horse semen was a reason quoted in court to “justify” her criminal action.

However, without wishing to sound too sanctimonious, we do need to remember that there really are no victimless crimes, even in the seemingly light-hearted examples we see.  Taxpayers lose out when it comes to fraud related to government bodies, like the horse-related one. Even if the losses are covered by insurance for firms that are the victims, then insurance premiums will rise, or insurance-firm shareholders will take a hit. Someone always loses when a fraudster gains.

Perhaps the most annoying fact is that most buying-related fraud and corruption could be stopped by organisations taking a few relatively straightforward steps. Or where it can’t be easily stopped, and we’re talking about relatively minor frauds such as misuse of company credit cards, then it could be detected quickly.

Yet too often, the right processes aren’t in place, and we are left with a CFO after the event whining that “it was a very sophisticated fraud”. In 90% of cases, it wasn’t, the fraudsters simply exploited obvious vulnerabilities, and the CFO should be fired on the spot. If that happened a bit more regularly, we would see far fewer buying related frauds, that’s for sure!