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Who is responsible for procurement integrity?

Started ‎09-15-2023 by
Modified ‎10-05-2023 by
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Procurement or purchasing is often one of the biggest spending departments or functions in any business—including in the public sector. It is, therefore, unsurprising that it is also a strong target for fraud, corruption, and other illegal practices.

 

Governments and international organizations such as the Organization for Economic Cooperation and Development (OECD) have set out regulations and guidance on procurement. These have generally been designed to improve procurement integrity and reduce the potential for fraud. However, there are still some genuine gaps in both understanding of what integrity entails and action to reach it, including who takes responsibility for procurement integrity.

 

Understanding procurement integrity

Interestingly, it is very hard to find a clear definition of procurement integrity. There are many regulations and official documents about it. However, few have a clear and simple definition. Even Google struggles to find anything except a statement of something prohibited by the US Procurement Integrity Act. Other definitions suggest that it is about the procurement process and bidders being able to trust the procuring organization. This is likely especially important in public sector procurement, with large contracts at stake.

 

However, every company should be thinking about procurement integrity—and this means being confident about the behaviors, ethics, and operations of their suppliers and vendors. Many companies consider this a one-off process of checking up on a supplier at the start of the relationship. However, circumstances can change, and ensuring procurement integrity needs to be an ongoing process.

 

Responsibility for procurement integrity

The next question is who is responsible for procurement integrity. There are various possible answers to this, and it is worth going through them all from the top:

  • The CEO. Well, yes, ultimately, the responsibility for procurement integrity rests with the CEO, as everything else in the organization ultimately rests on their shoulders. They do have a clear role in setting the tone for the company’s culture and values and showing what is important—which will include procurement integrity. However, it would be ridiculous to suggest that they should be checking every supplier or transaction personally. Similarly, the board will have oversight of processes and policies but cannot be considered responsible for individual transactions.
  • The Chief Financial Officer. A person responsible for the whole process regarding finance and accounting, which has an influence on the organization’s P&L, is also interested in the Procurement Integrity area. There can be found some savings helping the CFO to deliver the best possible P&L.
  • The Chief Procurement Officer (or senior executive responsible for procurement). Again, of course, they have a responsibility. They set the culture for the procurement team and have the power to make the policies that will be followed during procurement processes. Equally, they cannot check every transaction or stand over every team member—nor would anyone expect that.
  • The procurement team. They will have day-to-day responsibility for carrying out procurement processes and ensuring that policies are properly implemented and followed across the organization. They may have input into developing policies, but they don’t hold full responsibility for that. They may also be responsible for deciding on tools and technologies to support procurement and making sure that they are used correctly.
  • The organization’s legal advisers. Their role is to be sure that the organization’s leaders understand their legal obligations on procurement, including procurement integrity. They need to provide suitable legal advice, and they can advise on its implementation—but they are not responsible for seeing whether it is carried out.
  • The internal audit function. They can audit procurement processes, both to identify past problems and to find potential holes in the system. Their role is effectively a backstop to catch any problems that may have crept in. Proactive audits can also help to identify possible future problems. They may also be able to advise about suitable tools to support procurement integrity, but they are certainly not primarily responsible for it.

A team effort

All these individuals and groups have a role in developing and implementing a comprehensive procurement integrity program for the organization. This must cover written rules and codes of conduct, formal policies for procurement, a strong risk assessment that is regularly reviewed and updated, regular training for employees, internal controls, and audits. A strong procurement integrity program can help to prevent fraud, waste, and abuse and can also help to protect the organization’s reputation.

There is also a role for tools and technologies such as analytics in this program and processes. Analytics is particularly useful for ongoing monitoring of suppliers and identifying any changes in patterns of behavior that could indicate a problem or need further investigation. In other words, procurement integrity is a team effort—analytics and automation are key tools to assist that team.

An important aspect is the construction of the procurement team. On the one hand, its core consists of people with expert business knowledge, but on the other hand, it will be necessary to support analysts using AI and ML algorithms to identify cases suspected of fraud. Analysts will be able to indicate which places in the purchasing processes and which contractors, bidders, and employees may be suspicious. In addition, it is important to introduce a cyclical monitoring process with the use of a network analysis, which (amongst others) can surface price fixing or conflict of interest between the parties to the tender.

Procurement integrity covers billing, corruption & expense reimbursement, which are some riskier ones – as you can find on the chart below. The most affected departments are Accounting, Executive Management, Purchasing, and Finance. These are the places in which you can find the people responsible for Procurement Integrity.

 

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Where the risk of abuse is greatest. Data from the 2022 Global Study on Occupational Fraud and Abuse. Report to Nations

 

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Last update:
‎10-05-2023 06:27 AM
Updated by:
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