How To Avoid Procurement Corruption

Procurement corruption is an ethical company’s nightmare. Sometimes the corruption is obvious, but often it’s subtle and seems harmless—such as when a vendor gives small gifts to a company’s procurement division. Even if it appears inconsequential, procurement corruption can affect both your company’s bottom line and its reputation. If you’re vigilant, however, there are ways to prevent it—don’t worry, we’ve got you covered.

Establish an Ethical Culture

One of the best things you can do to prevent procurement corruption is to establish an ethical culture at your company. This will weed out people who might be prone to acting unethically while encouraging proper conduct. The ethical culture must start at the top—everyone in the organization from the CEO down must be seen as honest and responsible in all facets of their day-to-day.

A good place to start is by having a code of conduct that establishes ethical policies and procedures. This helps employees make good decisions and provides a framework for dealing with situations that may be questionable. Hiring individuals who are known for ethical behavior and training employees to spot red flags can encourage workers to conduct themselves appropriately. It also sends a message that your organization takes unethical behavior seriously.

Don’t Forget Suppliers

Working with ethical people extends well beyond your organization. Conduct thorough background checks on all suppliers to ensure they conduct themselves legally and ethically. Get references and check for potential conflicts of interest between your organization and suppliers. If you can, learn about their business culture. Do they focus on ethical practices? Do their values align with your company’s?

Keep in mind, your suppliers may be subcontracting out. If you don’t want this, make it clear in your contract and ensure that your supplier has the capacity to fulfill its obligations without subcontractors.

If you are okay with subcontracting, obtain a list of the companies your suppliers subcontract to and look into them. Just because you aren’t dealing with the subcontractors directly doesn’t mean their (potentially) bad behavior won’t affect you.

Watch for Warning Signs

If possible, segment the procurement process so no individual is responsible for an entire transaction. This keeps at least two sets of eyes on every step, increasing the possibility that someone will notice anything that seems ‘off’ and take action.

Among the warning signs to watch for, according to Deloitte, are poor record-keeping, personal messages between your staff and suppliers (such as communications via personal phones), conflicts of interests, excessive gifts from suppliers, overriding of internal controls and resistance from your staff to last-minute audits.

If your code of conduct is violated, make sure there are consequences for these types of less-than-favourable actions—regardless of who violates them. Having policies and practices in place to discourage unethical behavior goes a long way to preventing procurement corruption and protects your company’s reputation.

More Tips

For more information on avoiding procurement corruption, Deloitte has a report outlining the risks of procurement fraud. KPMG also have information about avoiding procurement corruption.

Ultimately, you’ve got to look out for yourself (oh, and your company too!). This might mean making some tough calls to ensure everything is going according to plan and that unexpected events won’t derail your processes.