Fraud in Procurements!

Procurement is a critical function that requires a proper due-diligence; many fraud cases occur due to lack of well-established procedures that govern the procurement process!

Examples on how critical is this function could be illustrated as follows:

Example 1: A company has procured some services to an IT advisory firm and paid the down payment (50% of the total cost); at the time of execution the company discovers that this firm doesn't exist and it has no legal records anywhere!

Example 2: A bank has procured some services that cost a HUGE amount of money to an IT development company. At the time of audit, they came to know that services provided were not worth this amount and the company's owner is a relative to the person who made the procurement decision!

Those are true stories by the way and it happens everyday!


In quality management, there is a concept which states: prevention over inspection!
And in Arabic, there is a nice saying that says (translated): "prevention is better than cure"!


So the question is: how can you prevent fraudulent acts under procurement process?


The following are some tips and guidelines for a better procurement process:

1. What's Needed Only:
Document your needs clearly so you know what you are looking for. Don't go for the full package if you don't need it, because you will be paying for something you will not use, and your cost will not be calculated one time but everytime (don't forget the maintenance/support costs)!


2. Multiple Options:
Even if you have a preferred list of sellers, don't leave yourself optionless, it's better to have a broader view on each seller's services offered, fees, quality and timeline. It will strengthen your position and ease the negotiation process at a later stage.


3. Seller 360:
Do your homework in performing a full profile check on your prospective sellers, ask the experts about them, obtain evidences, justifications, credentials, references, clarifications, etc...


4. Don't Go Cheap:
First, a high cost doesn't indicate a better quality and vice versa. So even if you are in a tendering process, make sure that you don't solely look at cost in evaluating your seller's proposals. You need to put an evaluation criteria in which you consider a high weight for the quality of work, so you don't end up bearing the cost of poor quality.


5. SWAT Involvement:
SWAT stands for "Special Weapons Attack Team", I quote it from a movie. The SWAT in any organisation is Audit and Risk, involve them in decision making if you have doubts and let them carry bits of this responsibility over their shoulders.


6. Cover Your Back:
The contract is your only way to cover your back, make sure to write it in a legally binding language, hire a legal consultant to review and advise if needed, but don't leave your back uncovered or poorly covered.


7. Monitor:
Monitor the progress against the agreed plan, make sure that your service/product provider is adhering and complying.


8. Close:
Don't neglect the closure, the flow of bills and invoices won't stop if the end of this process is not declared.



Procurement is not an easy decision to make, you may prefer to build the solution in-house if you have the required caliber.

However, it's unlikely and unfeasible to acquire all the resources needed to execute a single temporary job; it's like buying all the items needed to make pasta (oven, plates, macaroni, salt, cooking book, etc...) while it's available everywhere!


Procure, but be aware..