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Bad Buying was published last week, and whilst there wasn’t exactly a rush of media appearances, it was reviewed in the Times on Saturday (behind the paywall unfortunately).

The reviewer (Robert Colvile) enjoyed it, although he found it annoying / depressing that governments seem to make the same mistakes time and time again when it comes to spending public money. Well, yes, I’d agree of course, that being one of my reasons for writing the book! He also picked up on one important point that is mentioned in the book but perhaps deserves more focus.  As Colville put it in his review,

“And the mistake was usually pretty elementary (as a rule, anyone who talks about how their organisation was victim to a “very sophisticated” gang of thieves is telling porky pies: far more likely is that there was a failure to attend to the absolute basics).”

This is so true. We see it almost every time there is a fraud case – the organisation that has lost out claims it is the cleverness of the fraudsters, not the stupidity of management that is to blame. That is the case even if all the fraudsters have done is phoned up the finance department and said “hello, this is IBM here, we’ve changed our bank details, please can you pay our outstanding invoices now to this new account”. Very sophisticated…

But it is  certainly not just the public sector that gets caught out. EssilorLuxottica, the worlds leading lens and eyewear firm, was the target of a 190 million euro ($213 million) fraud at one of its factories in Thailand. At the end of last year, the firm announced that it had fired employees associated with the incident (well, you would, wouldn’t you) and was looking to recover the money.

An intelligent guess would suggest that this was a “fake supplier” fraud, where money was paid under the authorisation of someone internally to external firms that were controlled by the fraudsters.  Those firms would not in reality be supplying anything to EssilorLuxottica of course, and by the  time the fraud was spotted, those bank accounts would have been closed and the cash long since extracted.  But this was a huge amount of money to disappear from a single factory in Thailand – it  sounds like it could be equivalent to the firm’s entire annual revenue in that country.

Assuming that was the nature of the fraud, how on earth could such large sums of money be extracted without anyone noticing? What were the policies in place and processes to check up on those new “suppliers” and their legitimacy? Who was allowed to approve high value payments?  Did the firm outsource any part of the payment process to a third party services provider? (That can sometimes lead to weaknesses in the process and less focus on what is going on).  Maybe there was some sophistication here in the fraud, but it really does smack of poor internal management and controls.

Anyway, that story is really told to demonstrate that it is not just the public sector that can waste money and fall down on basic anti-fraud processes. I’d suggest that every procurement or finance leader and every Board should consciously think about this question – “if I wanted to defraud my organisation, how would I do it”? 

Think  through the different options and potential points of weakness, and evaluate whether there are processes, checks or policies in place that would stop you getting away with it. If the answer is “no”, then either tighten up quickly or accept that you might be the next person waffling on to the press about “sophisticated criminals”!  Personally, I would also fire the CFO if such a basic fraud was committed on his or her watch.

The Bad Buying book might be useful too if you are concerned about these issues.  It contains seven key anti-fraud principles, with some practical and clear advice on how you can at the very least reduce the chances of fraud and corruption affecting your organisation.

All over the world, medical staff have struggled to find enough PPE (personal protective equipment) to meet their needs and protect themselves in a time of pandemic.  The problems have extended out and affected other users too, in care homes, local government, the police even.

That has led to some buying activities and processes that were far removed from the usual formal public procurement approaches. In the UK, we have seen huge orders placed with firms that normally would not have made it beyond the first basic company checks. Money was paid up-front in some cases, something else that would never happen in normal times.

We’ve been hesitant to call this Bad Buying  given the emergency situation, although at time of writing, there is some evidence that the UK may now have over-ordered at the top of the market and paid more than perhaps we needed to. But let’s reserve judgment on that for now.

But as well as issues of competence, there have also been accusations of bias, nepotism and even fraud. Sometimes those are far-fetched; the fact that the CEO of a small firm supplying PPE once attended a Conservative Party charity dinner should not mean his firm can never be a government supplier again!

In some countries however, the issue has gone much further. Recently, the BBC reported on the arrest of the Zimbabwean Health Minister, Obadiah Moyo, as “the government came under pressure from the opposition and on social media over a scandal surrounding the procurement of coronavirus tests and equipment”.

Moyo faces charges related to a $20 million contract for PPE and other virus-related kit awarded to a firm registered in Hungary, allegedly made without going through the proper procurement processes.  The company, Drax Consult, was only registered two months before the contract award, and the firm’s representative in Zimbabwe, Delish Nguwaya, has also been arrested. Africa News reported that “local journalists exposed how Moyo allegedly chose the company to sell medical supplies to the government at inflated prices that included face masks for $28 each”.

The President, Emmerson Mnangagwa, has made much of his anti-corruption drive but one of his sons was forced to issue a statement denying a link to the company after pictures emerged of Nguwaya with the president, his wife and sons at several events. Meanwhile doctors and nurses have been on strike demanding to be paid in US dollars as inflation is running at over 750% and incomes are virtually worthless in this struggling nation.

Coming back to the UK, the recent controversial government contract for market research (running focus groups) actually seems to me more dubious than most of the PPE buying activity. Giving a firm with “conflict of interest” type links to adviser Dominic Cummings and Cabinet Office Minister Michael Gove a contract for almost £1 million with no competition simply seems wrong. The “urgency” claim made in that case does not hold water really when a quick competition could have been run in days. But at the moment, the British people don’t seem inclined to riot in the streets or start arresting Ministers.

That’s because corruption in public life is not perceived as a big issue in the UK, unlike in Zimbabwe. That is probably a reasonable stance today; but my fear is whether the public would notice or care if matters started getting worse.  The situation can decline rapidly, and once corruption becomes embedded, it is devilishly difficult to root out. Corruption is not the only cause of Zimbabwe’s decline in recent years, but it is certainly one driver of the economic woes the country has experienced.  So, even in nice, apparently honest western democracies, we need to “stay alert”, as somebody told us recently … 

(And of course there is much more about fraud and corruption in procurement in my new book,  “Bad Buying – How Organizations Waste Billions Through Failures, Frauds and F*ck-ups”, available to pre-order now).

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!