This document discusses procurement fraud and provides definitions, frameworks, and strategies for organizations to prevent and detect fraud. It outlines that procurement fraud involves intentional deception to obtain an unlawful advantage. It then discusses how fraud occurs at the organizational, personal, and process levels and provides warning signs. Finally, it recommends professionalizing the procurement process through training, compensation, and establishing standard procedures while also conducting periodic reviews and using outside help to detect potential fraud.

1. Procurement Fraud PSECE 2011 Bill Kohnen

2. For Discussion Fraud Overview Organization People Process Warning Signs Detection Methods

3. Overview – Some definitions Intentional deception to cause a person to give up property or some lawful right - Dictionary An act done with an intent to give advantage inconsistent with official duty and rights of others - Legal The act of official or fiduciary person who unlawfully and wrongly uses their status or character to obtain some benefit for themselves or others contrary to the duty and rights of others - Legal

4. Frame Work Motive Opportunity Rationalization Need, Greed, Power, Love Normal, Justice, Deserving DENY CHANCE

5. Organization Private Protect the owners money Owners rules Public Shareholders SEC, CCS (Singapore) BOD Government Citizens Law Agency and Fraud Laws

6. People Trained Professionalism Compensation

7. Training Background Many programs in Supply Chain Emphasis in Business and MBA Industry benchmark Minimum budget 20 -40 Hours year On average per purchasing staff $1000USD PAISA, PISM, Karrass, many more

8. Professionalism Professionals have a code of conduct Career and reputation is “transportable” Have skills and tool to deliver best results Continued learning and network for assistance

9. Compensation People Managing the Spend of Millions of Dollars must be compensated at a global wage. Professionals deliver better total costs Professional reduce loss as a result of fraud

10. Suggested Wages Buyer 500K - 1M PHP Senior Buyer 2-3M PHP Manager 4-6m PHP Director 5-7M PHP Variation within industries and depending on spend, background, responsibility etc.

11. On Spend of 100M USD Professional staff reduce cost up to 5% more = $5,000,000 USD Professional staff reduce fraud loss up to 5% more = $5,000,000 USD 10 M USD Yearly Benefit

12. Savings to Staff @ $100M USD Spend ~ $500K Salary = $10M Benefit Director Manager Senior Buyer Buyer Buyer Buyer Buyer Buyer Staff Manager

13. Process Basic Professional Supply Chain Process result in Protections Supplier Accreditation and Review Requirements development Bid process and Review Procedures Negotiation Process Supplier Monitoring Continuing market benchmarking

14. Warning Signs Specifications that are to severe or to unclear Splitting of Orders Requests for substitution once order placed 3 times mistake Bid process timing

15. Warning Signs High Yield loss or scrap Unusual level of involvement from person from other functional area Unwillingness to delegate Lifestyle change Feedback from Suppliers

16. Detection/Prevention Methods More rules and more oversight generally NOT the answer. Periodic review of following areas: Approval Process Changes Made Review Vendor Master files Identify spend outside of normal process

17. Detection/Prevention Methods Cross functional/Multicultural view is good Outside help

18. Conclusion Supply Chain Professionals have duty to establish procedures that minimize risk of fraud. If Fraud does exist then it is the organization that must respond. Supply Chain Professionals still must use extreme caution when fraud may be detected

19. Conclusion Supply Chain Professionals must use extreme caution when fraud may be detected.

20. Conclusion Exposure of Fraud opens up Organizations and Individuals to further risk: Reputation Financial Regulatory Legal