The real effectiveness of an organisation’s systems and controls hinges on its people and the ethical decisions they make. With increasing pressure from global competition, increased regulation and higher costs, the procurement function in every organisation plays a critical role in value creation, with an impact on the bottom line. It serves to ensure the organisation obtains the best value for money in procuring goods or services.
The key stages of the procurement cycle start with the sourcing and selection of vendors, followed by the delivery of goods or services procured and, subsequently, vendor payment. While lapses in controls are not synonymous with fraud, such lapses may make an organisation more susceptible to fraud. Th ird-party collusions and increasing sophistication of procurement fraud cases make detection more complicated. Insider perpetrators often know the policies and procedures of their organisations well enough to exploit the loopholes by covering up with form over substance while some have the power to override the existing controls.
A key principle to ensure robust internal controls is the segregation of duties among those involved in the procurement process. With this in mind, what are the other best practices and potential red flags that management can adopt at the various stages of procurement?