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Reveal and reduce fraud using cloud procurement solutions

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Reveal and reduce fraud using cloud procurement solutions

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Reveal and reduce fraud using cloud procurement solutions

  1. 1. REVEAL REDUCE FRAUD AND using cloud procurement solutions
  2. 2. 1. Introduction 2. Procurement benchmarks 3. South Africa in the context of procurement 4. Risks in the manual process of procurement 5. How cloud solutions can help mitigate risk CONTEXT REVEAL AND REDUCE FRAUD | MARCH 2017
  3. 3. INTRODUCTION REVEAL AND REDUCE FRAUD | MARCH 2017 chimae.goncalves@supplychainpartner.com Schalk Burger Co-Founder & Director of Technology Chimae Gonçalves Co-Founder & Director of Strategy schalk.burger@supplychainpartner.com
  4. 4. PROCUREMENT BENCHMARKS – GLOBAL HIGH PERFORMANCE CRITERIA: KEY PROCUREMENT LEVERS • Executive advocacy • Stakeholder alignment • Decision-making • Talent strategy • Talent investment • Talent capability • Digital procurement • Consolidating spend (40%) • Increasing competition (35%) • Specification improvement (28%) • Increasing levels of supplier collaboration (26%) • Reducing total ownership costs (26%) REVEAL AND REDUCE FRAUD | MARCH 2017 Text and graphics taken from The Deloitte Global CPO Survey 2017 MANY CPOs HAVE SIGNALED COST AND RISK MANAGEMENT AS THEIR TWO PRIMARY FOCAL POINTS FOR THE COMING YEAR Increased requirement for more leadership and digital skills
  5. 5. PROCUREMENT BENCHMARKS – GLOBAL REVEAL AND REDUCE FRAUD | MARCH 2017 Text and graphics taken from The Deloitte Global CPO Survey 2017 VALUE AND COLLABORATION 42% of CPOs have high levels of support from their executive teams in driving their agendas. There has been little improvement in the level of involvement which procurement plays in decision-making. Procurement is often involved in 'make vs buy' decisions and shaping the way services are delivered. There has been almost no improvement in the skills and capabilities of the procurement team. 60% of CPOs still believe their team does not have what it takes to deliver their procurement strategy. There is an almost universally moderate skill gap, which is not aided by comparatively low levels of training spend. Overall, CPOs envisage procurement playing a larger role in delivering a digital strategy, with 75% indicating heightened levels of involvement over the next five years. Analytics and renewal of strategic procurement tools are the two main areas that are deemed to have the most impact on business in the next two years. Improvement in the quality of data is seen as key to make these into reality. TALENT DIGITAL PROCUREMENT
  6. 6. REVEAL AND REDUCE FRAUD | MARCH 2017 Text and graphics taken from The Deloitte Global CPO Survey 2017 Technology areas that will have the most impact in the next two years: Main barriers to the effective application of a digital strategy are data, people and systems: PROCUREMENT BENCHMARKS – GLOBAL 60% OF CPOs DO NOT BELIEVE THEIR TEAMS HAVE THE SKILLS TO DELIVER THEIR PROCUREMENT STRATEGY 65% 57% 49% 40% 38% 37% 25% 20% 13% Analytics Renewal of strategic procurement tools Renewal of operational procurement tools Renewal of ERP platform Digital Cloud computing Cybersecurity data privacy Emerging technology Robotics Process Automation (RPA) 49% 42% 29% 29% 26% 23% 21% 19% 18% Quality of data Lack of data integration Skills capability of analytics resources Current technology Limited understanding knowledge of data technology Limited senior stakeholder endorsement and technology Availability of analytics resource Availability of data Poor system adoptions Other4% Systems Data People
  7. 7. REVEAL AND REDUCE FRAUD | MARCH 2017 HIGHLIGHTS • Main priority – cost reduction • Level of decision-making still low • Skills gap • Digital strategy • Strategic tools • Data quality improvements 58% of CPOs indicated an improvement on the previous year, close to the global average. The main priority for the CPOs is reducing costs, with 77% indicating it is a strong priority. Consolidating spend is the number one lever expected to deliver the most value over the next 12 months. MARKET OUTLOOK Text and graphics taken from The Deloitte Global CPO Survey 2017 PROCUREMENT BENCHMARKS – EMEA
  8. 8. WHERE IS SOUTH AFRICA IN THE CONTEXT OF PROCUREMENT?
  9. 9. REVEAL AND REDUCE FRAUD | MARCH 2017 SOUTH AFRICA CORRUPTION PERCEPTION According to the Institute for Security Studies, the public perception that corruption is getting worse in South Africa, has notably increased since 2008. The report is based on surveys of 51000 people in 34 African countries. http://www.corruptionwatch.org.za/why-is-corruption-getting-worse-in-south-africa/ This article first appeared in ISS Today, the weekly online newsletter of the Institute for Security Studies
  10. 10. REVEAL AND REDUCE FRAUD | MARCH 2017 SOUTH AFRICA CORRUPTION PERCEPTION “IN TOO MANY COUNTRIES, PEOPLE ARE DEPRIVED OF THEIR MOST BASIC NEEDS AND GO TO BED HUNGRY EVERY NIGHT BECAUSE OF CORRUPTION, WHILE THE POWERFUL AND CORRUPT ENJOY LAVISH LIFESTYLES WITH IMPUNITY.” – José Ugaz, Chair of Transparency International South Africa has a robust anti-corruption framework, but laws are inadequately enforced. Two forms of corruption are particularly prevalent in South Africa: tenderpreneurism and BEE fronting. http://www.business-anti-corruption.com/country-profiles/south-africa
  11. 11. REVEAL AND REDUCE FRAUD | MARCH 2017 FORMS OF CORRUPTION BRIBERY Most common type of corruption. Can be defined as an offer of money, goods or services to gain an advantage. EXTORTION To cause harm or to threaten a person to obtain something. EMBEZZLEMENT Is the illegal appropriation of property or money entrusted to someone else but owned by others. NEPOTISM Is to favour relatives in granting jobs or benefits. PATRONAGE SYSTEMS Political office holders grant favours in return for political support. BID RIGGING Excluding qualified bidders, manipulation of bids, rigged specifications, unbalanced bidding, unjustified no-bid awards. FRAUD Involves some kind of deceit, manipulation or distortion of information to seek personal gain. Can often take the form of failure to meet contract specifications or false, inflated or duplicated invoices. COLLUSIVE BIDDING BY CONTRACTORS When contractors cooperate to coordinate markets, prices and production with the aim to increase own profits (cartels). TENDERPRENEURISM A tenderpreneur is an individual who enriches themselves through corrupting the awarding of government tender contracts BEE FRONTING BEE-fronting is an abuse of the rules governing Black Economic Empowerment (BEE), where qualifying persons are given a seat on the Board of Directors of a company while having no decision-making power in the company, in order to qualify the company for government contracts in terms of BEE.
  12. 12. REVEAL AND REDUCE FRAUD | MARCH 2017 PROCUREMENT MATURITY Future state Current state 5. Business partnering (internal and external) 4. Strategic sourcing / category management 3. Contracts management 2. Re-contracting or extending 1. Transactional buying, warehousing and settlement (P2P) Currently operating reactively and many risks need to be mitigated Reactivevsproactive
  13. 13. 1 2 3 4 5 6 7 REVEAL AND REDUCE FRAUD | MARCH 2017 CRITICAL RISK IN THE MANUAL STATE • Vague / INCORRECT SPECIFICATION • Specification often drafted by vendors • Reactive vs TCO • Many change orders • No sustainability model for decisions • Approval framework not optimal • Contracts process is manual • Contracts visibility limited • Limited COMPLIANCE MANAGEMENT • Contract expiration not visible (reactive) • Price change – manual (errors) • Lack of LEGAL input in generating contracts • Contracts not audited • No automated process for discounts • False or incorrect invoices paid. FRAMEWORK ORDERS (controls) • Delays in payments • Phantom billing • Misalignment with operations in terms of requirements • DISJOINTED FROM P2P • Buyers sitting at stores; opportunity to buy unwanted stock (segregation) • Manual, catalogue content not optimal leads to SPECIALS • Controls – split purchases • Staff professionalism and process not optimal • Not easily auditable • Not transparent – bid rigging • Tender adjudication manual • Contracts not stored centrally • Long lead times • Vendor registration process manual and inefficient • BEE reporting manual • Vendors not categorised per commodity • ONE TIME VENDORS – frequency of purchases • No supplier performance monitoring • Phantom vendors • Rumours of conflict of interest • System visibility in terms of repair BOM • System collaboration in terms of warrantees on parts • Waybill and order matching • Unauthorised disposals • Unauthorised distribution • Controls Organisation, skill and culture Information systems and technology Policies and procedures SUPPLYCHAINSTRATEGY SUPPLYCHAINPERFORMANCE Forecast & plan Source Contract & supply Settle Produce Develop & maintain Distribute & dispose
  14. 14. REVEAL AND REDUCE FRAUD | MARCH 2017 BROAD INEFFICIENCIES THAT CREATE RISK Lack of transparency Lack of adequately trained staff Insufficient accountability and controls Inconsistent distribution of information to bidders Unclear reasons for the choice of procurement procedure Unjustified use of non-competitive procedure Unclear evaluation criteria No consolidated visibility of information to take accountability Lack of understanding and application of policies and procedures
  15. 15. REVEAL AND REDUCE FRAUD | MARCH 2017 BROAD INEFFICIENCIES THAT CREATE RISK OTV definition: Vendors used once or twice a year One-time vendors Framework orders Specials FO definition: To offset financial payments where no PO exists Specials definition: off-contract, direct OTV spend was R300m – of that R150m was with 10 vendors. 80% of spend on OTV was with 10% of the vendors. FO spend was 50% of spend. Often because of poor data management.
  16. 16. TYPICAL P2P RISKS
  17. 17. REVEAL AND REDUCE FRAUD | MARCH 2017 1. GENERAL RISKS Corruption red flags Related corruption schemes Current gap Risk mitigation General Corruption red flags Related corruption schemes Current gap Risk mitigation General department risks Insufficient transparency Corruption Policy and procedural guides and standards for transparency Insufficient accountability Corruption Policy and procedural guides and standards for accountability as well as pre-approved templates Lack of professionalism Corruption Codes of conduct guides and standards for professionalism as well as pre-approved templates Process Technology Behaviour
  18. 18. REVEAL AND REDUCE FRAUD | MARCH 2017 2. PRE-TENDERING PHASE Corruption red flags Related corruption schemes Risk mitigation Steps Corruption red flags Related corruption schemes Current gap Risk mitigation Needs assessment, planning and budgeting, requirements definition, choice of procedure Purchase of unnecessary or inappropriate items Corruption Correct approval process embedded in technology. Manipulation of procurement thresholds to avoid prior review Unjustified no-bid awards Correct approval process embedded in technology with exception reporting Inadequate evaluation criteria or procedures Manipulation of bids, excluding qualified bidders, corruption Roles, responsibilities, policies and procedures clearly defined, and continuous training Unreasonable prequalification requirements Excluding qualified bidders Roles, responsibilities and correct approval process embedded in technology Ambiguous, incomplete or misleading contract specifications Unbalanced bidding, corruption Roles, responsibilities, and correct approval process embedded in technology Contract specifications are too narrow or too broad Rigged specifications, excluding qualified bidders, corruption Roles, responsibilities and correct approval process embedded in technology Process Technology Behaviour
  19. 19. REVEAL AND REDUCE FRAUD | MARCH 2017 3. TENDERING PHASE Corruption red flags Related corruption schemes Risk mitigation Steps Corruption red flags Related corruption schemes Current gap Risk mitigation Invitation, evaluation and award Unusual bidding patterns, apparent connections between bidders, bidders not approved Collusive bidding Better controls embedded in system and training Multiple contract awards to the same company Corruption Better controls embedded in system and training Qualified companies fail to bid Excluding qualified bidders, collusive bidding Process and training Rotation of winning bids, unreasonably high or low bids Collusive or unbalanced bidding, corruption Technology trends, process training Non-transparent bid-opening procedures, or award to other than lowest bid, unsupported disqualification, pressure to select certain vendor, winning bid close to actual estimate, long unexplained delays in bid award Manipulation of bids, corruption, exclusion of bids Process checks and balances, technology and training Process Technology Behaviour
  20. 20. REVEAL AND REDUCE FRAUD | MARCH 2017 4. POST AWARD PHASE Corruption red flags Related corruption schemes Risk mitigation Process Technology Behaviour Steps Corruption red flags Related corruption schemes Current gap Risk mitigation Contract management and payment Use of questionable subcontractors or agents, or duplicate vendors Corruption Supplier management process and technology Complaints regarding delivery of poor quality of goods or service Failure to meet contract specifications System to track Continued acceptance of poor quality of a service or a product Corruption Better controls embedded in system, and training Questionable contract amendments (change orders to increase price) Corruption Process controls, training and reporting Questionable payment of incorrect invoices (inflated or duplicates) Corruption Process controls, training and reporting Absent or questionable documentation (such as goods receipt) Corruption Process controls and training Claims for goods and services not supplied Corruption Process checks and balances, and technology Missed discounts Failure to apply discounts Process controls, training and reporting Vendor master management, financial payments and controls for segregation of duties Fraud Process controls, training and reporting
  21. 21. REVEAL AND REDUCE FRAUD | MARCH 2017 TEN ASPECTS THAT CAN CREATE CORRUPTION Size of contract Often applicable to large contracts as bribe may be % of contract value. Complexity of goods or services Where difficult to ascertain true value of a product or a service. Sector Mining is in TOP 5 of sectors vulnerable to corruption. Discretion The more flexible the discretion, the easier to participate in corruption. Lack of financial controls Weak systems, higher level of corruption. Restricted access Poor transparency boosts corruption. Funding schemes Promotion of funding schemes (direct budget support) with few financial controls increase risks for corruption. Immediacy The more urgent, the more likely for price inflation. Soft social control Some countries, sectors and companies are more tolerant of corruption. Conflict of interest Where conflict of interests occur, corruption is likely to happen.
  22. 22. SOLUTIONS
  23. 23. REVEAL AND REDUCE FRAUD | MARCH 2017 CONSOLIDATING YOUR VIEW OF SPEND Post-approved Pre-approved Not approved Purchase orders Sundry invoices Expenses
  24. 24. Purchase order Delivery and invoice Payment Requisition Catalogue Approval REVEAL AND REDUCE FRAUD | MARCH 2017 UPSTREAM AND DOWNSTREAM PROCESS SOURCE TO CONTRACT PROCURE TO PAY CATALOGUE Contracting Catalogue Managing performance Analysis Find correct suppliers Source solution
  25. 25. Contracting Catalogue Managing performance Analysis Find correct suppliers Source solution • Compliance dashboards • Desktop audits • Receiving goods/services • DoA REVEAL AND REDUCE FRAUD | MARCH 2017 UPSTREAM AND DOWNSTREAM PROCESS Contacting Catalogue Managing performance Analysis Find correct suppliers Source solution SOURCE TO CONTRACT PROCURE TO PAY • Process transparency • Evaluation criteria • DoA, SoD • Award approvals • One-time vendor • Associated entities • SoD • False claims • Legislative risk • Quality • Environment • Integrated checks • KPI • Traceable performance management • Compare subjective and OTIF • Non conformances • Item standardisation (no vendor specific spec) • DoA, SoD • Compliance management • eSignature • Index tracking integration • Invoice compliance • e-invoice three-way matching • Prevent duplicate invoice settlement CATALOGUE Purchase order Delivery and invoice Payment Requisition Catalogue Approval
  26. 26. REVEAL AND REDUCE FRAUD | MARCH 2017 CRITICAL RISK IN THE MANUAL STATE • Supply chain strategy • Collaborative planning meetings (sustainability) • Clearly defined roles and responsibilities • One place to update specifications • Approval framework review • Automation of workflow • Automated contract: linking of documents from tender, to contract, to order to invoice. • Enforce compliance • Notifications • Price change automated process • Legal review of all contracts • Approval framework review • Vendor self registration • Automated BEE reporting • Re-categorisation of commodities • OTV rules and exception reporting • Automated supplier performance management • Vendor checking • Collaborative alignment • P2P integration • Buyers should be part of a procurement department and not be isolated in stores • Content strategy (cataloguing) • Automated exception reporting to track split orders • Training for staff (roles & responsibilities) • Technology that makes process easily visible and auditable • Enhanced workflow (push vs pull) • Sourcing repository • Improved lead times • Automated process for discounts • Automatic invoice generation • P2P integration • Flat file imports into ERP • Automating release strategies into Microsoft mail • Rumours of conflict of interest • System visibility in repair BOMs • System collaboration on warranties on parts • Waybill and order matching • Strategy for distribution and disposal • Controls Organisation, skill and culture Information systems and technology Policies and procedures SUPPLYCHAINSTRATEGY SUPPLYCHAINPERFORMANCE Forecast & plan Source Contract & supply Settle 1 2 3 4 Produce Develop & maintain Distribute & dispose5 6 7
  27. 27. THANK YOU

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