Two Days to Bad Buying … How Vulnerable is Your Organisation to Fraud?
It is now just two days to publication of Bad Buying. So today, let’s focus again on the second section of the book, all about fraud and corruption. Whilst I really enjoyed writing and researching this section, it was also somewhat annoying and frustrating. That’s because so many of the cases featured could have been stopped, avoided or at least made a lot more difficult if certain basic processes and policies had been in place.
How was Fat Leonard allowed to corrupt so much of the US Navy, to the point where hundreds of officers (up to Admiral level) have ended up in court? Even when his firm did not legitimately win contracts for servicing ships in south-east Asia, the ship commanders used his firm anyway.
So why was no-one checking up on contract compliance when the firms who should have got the business didn’t? Why did no-one look at spend analysis and ask questions about just how much money and share of business was going to Fat Lenard’s firm? And how do you end up with a situation where several whistle-blowers raised the issue, but so many people were corrupt (including some recipients of whistleblowing information) that it still carried on for years?
Or for something a little less exotic, consider the legendary Sainsbury’s potato fraud. The UK supermarket group was defrauded for years by collusion between the buyer and a key vegetable supplier. The buyer agreed to pay over the odds for all the potatoes bought from that firm and in turn took kickbacks and had expensive meals and trips with the sales director. But why did no-one spot that Sainsburys were paying more than the should? Why was there no regular open and competitive process to source potatoes? Why was the decision making resting apparently in one man’s hands?
So I’ve laid out seven key anti-fraud principles in the book, and I’d seriously recommended that everyone should consider how their own organisation scores on these. Some seem obvious until you actually look at how many organisations really adhere to the principle. For example, it is vital that all entities to which money is paid must be verified and authorised.
We need to make sure the order and the payment isn’t going to a fake or dummy company, perhaps even one controlled by the order placer (the internal fraudster) or their associates (when there is internal / external collusion). That “supplier” may still supply the goods and services required, or something approximating to them, with the fraud being the quality or quantity of what is provided. Or they may supply nothing, relying on no-one other than the fraudster realising that nothing has actually been received. Or perhaps the time-lag before the discrepancy is noticed is enough for the fraudster to safely disappear, before anyone asks where those 5000 laptops that have been paid for have got to.
So we must check that the entity we’re paying money to is genuine. Is it a registered company with a trading history? Does it have a track record? Who are the Directors? You really need to understand who your suppliers are, and identify any that aren’t genuine.
That’s enough on fraud for now, and tomorrow I’ll look at the final chapter in the book where I lay out some thoughts on how you can drive “good buying”. The book isn’t all case studies of failure – there is advice too, because the aim is to educate and inform, as well as to entertain and to shock people a little!
So you might still get delivery of the book on publication day (Thursday) if you order now – check out the links here. (In fact, one friend tells me his book arrived yesterday). There is also a podcast now (“Peter Smith’s Bad Buying podcast”) and the first two episodes, around 15-20 minutes each, are available on most podcast platforms.
There is even a Bad Buying playlist on Spotify (all my section titles in the book are also song titles …) It is a “diverse” playlist, as my daughter described it, but I’ll take that as a compliment! You can make your own judgment on that.
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