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12 Step Roadmap to Reduce Procurement Fraud Risk

Practical action steps are needed to reduce the risk of procurement fraud. This 12 step guide will walk you through changes you can make within your company.

Leaders rightly get aggravated with their staff when someone brings them a problem without a suggested path forward, or even better, a potential resolution.

My prior article “What do basketball recruiting and procurement fraud have in common?” presented the problem of business and personal procurement-fraud exposure, using five strategic questions to evaluate potential risk. As promised, Part 2 now offers 12 steps for improvement.

This 12-step process was gathered anonymously from highly experienced attendees at the 2017 NACD (National Association of Corporate Directors) Global Board Leaders’ Summit. They confidentially offered new insights and suggested actions, which have been aggregated into 12 highly focused steps of improved checks and balances. In a world where far too many people enjoy second-guessing well after the fact, potential million-dollar blind spots are better found and resolved as part of enterprise risk management (ERM), compliance or governance processes.

These 12 steps enable organizations in various phases of addressing procurement fraud, across a wide range of industries and sizes, to transform risks and attitudes. This process requires only prudent additional investments of money, people and time. For best results, tailor the timing or application of these steps to your industry, size and current risk profile.

12 Steps For Improvement Based on Current Potential Risk

The two highest levels of risk in Part 1 of this article were “Trainwrecks occur every day” and “You may only be investing the minimum.” Think of these as a D and F grade, respectively. If you scored your organization in either of these categories, just verbalizing that your business may have procurement fraud exposure can be a reasonable first step toward improvement. Then use these top three suggestions as foundational steps to move forward:

  1. Obtain C-Suite (or at least CEO) buy-in to champion change and drive accountability. The tone at the top is crucial.
  2. Select a crossfunctional group to create an agenda based on what they feel are the organization’s top procurement fraud exposures and opportunities.
  3. Engage an external procurement-fraud or forensics expert to better verify, prioritize and supplement your internally generated list of exposures.

With a better understanding of potential risks and areas for improvement, you can move into the category “You didn’t get here overnight, and you won’t get out overnight.” Think of this as a grade of C, and use the next three top suggestions from attendees to improve:

  1. Better align compensation to incentivize gross margin and profitability, ethical behavior and greater conformance with culture.
  2. Involve Internal Audit in targeted key areas identified in the prior sections, and bring in the Board of Directors to make focused deep dives.
  3. Use this new level of understanding to determine whether you need to make an example of someone. Depending on the severity of what you’ve now found, consider firing someone — from as high as the external auditors to as focused as a very flagrant offender.

With these specific tools and tactics employed, your organization moves into the category “Life is good until it isn’t” — or a B in school. You’re now ready to use the following three top suggestions to progress toward more of a return-on-investment (ROI) level:

  1. Revise and automate procedures, drawing upon external best practices, as part of re-evaluating the financial and people resources required.
  2. Determine whether it is necessary for your company to move up to the top category at this time.
  3. Support these actions with specialized training for both procurement and other appropriate personnel throughout your organization.

If your organization moved up to or was originally rated in the top category “Ongoing diligence and vigilance make a good combination” — an A grade — well done! Take a brief victory lap. Then consider how to further improve and expand your lead over competitors. Use these three top suggestions to maintain your outstanding status:

  1. Review the alignment of strategy, procurement and your overall supply chain.
  2. Create appropriate metrics for ongoing monitoring.
  3. Bring back or engage another external expert for a “booster-shot” type of overview.

In conclusion, consider these 12 proven suggestions and apply those that make the most sense at this point in your organization’s life cycle. Taking any of these actions will help reduce your exposure to procurement fraud and strengthen the related areas of ERM, compliance and governance.

The consensus of NACD Summit attendees was that your business should be able to quantify its status before and after it follows these field-tested steps. Use those hard numbers and results to clearly demonstrate that this is one more area where better compliance and governance is not just a cost — it is an investment with a clear ROI.

Gary W. Patterson

Gary W. Patterson, president & CEO of FiscalDoctor®, works with leaders who want to uncover their blind spot; before it finds them, so that they can make better decisions. He can also help increase profitability, providing access to 100 best-of-the-best experts who are often better and cheaper than incumbents. Gary can be reached at 678-319-4739 or [email protected].


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