Procurement & Ethics Fraud

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Author: Margaret Gilbert

Procurement is required to be carried out in a transparent manner and to ensure accountability. In most instances procurement is conducted through the contract term with good intent and actions. However, there are instances where the line is ‘blurred’ and behaviours of one or more parties involved which is unacceptable.

The question becomes: what action should be taken? The answer should be straightforward but is not.  Procurement has a responsibility to ensure compliance and to provide clarity as to expectations and, more importantly, consequences.

A code of ethics is essential which has consequences. It is unhelpful for this to be a ‘tick the box’ exercise.  So, where is the ‘line’? Is it okay to offer or accept ‘gifts’ such as calendars, pens etc? Only at Christmas? Or, not at all?

It has to be said that once the ‘line’ is crossed then the issue becomes how to get back or is the ‘line’ changed forever? There are instances where unethical behaviour changes into deception, bribery and fraud.

Procurement is about people. Mostly, buyers and suppliers behave transparently but there are some who behave corruptly. There are procurement policy and procedures but again it takes people to implement them. The message has to be clear to buyers and suppliers that there is a responsibility to act ethically and it needs to be clear as to expected behaviours and what  strong action will occur if behaviours are not abided by.

What occurs in some of these instances is that the matter is dealt with internally and often in silence.  This allows the person to continue the behaviour elsewhere which is not good enough.

Equally, suppliers behaviours can lead to inappropriate behaviours. There is scale here but if no action is taken this can lead to an increase in the severity scale. Procurement has to provide a clear direction.

Can we make a change? It can sometimes be difficult with all the issues surrounding procurement and about how bad it seems. However, if individual buyers acted and made choices and communicated the vision then change for good can happen.

If it is seen that, in the long term, cheating – and that is what corruption is – will not work, then it is likely that it will discontinue.

Procurement people need to show the way – and promote the benefits of having an effective procurement process. The first way of doing this is through education – perhaps there is a need for procurement buyers to start training their own suppliers – and even better – the whole supply chain.

Education is the key. The method of education depends on the linkages of suppliers/supply chain/the public. Education, plus the use of robust processes.

We all have a part to play – and it will help procurement professionals by including management to ‘filter down’ to all staff what is acceptable business and personal behaviour – and what is not.  Even better: find a way to enforce it.

Clarity on procurement rules is essential as is a clear policy on consequences of corrupt behaviour. This is essential. Enforcing of a code of conduct is required. A zero tolerance approach is required.

Procurement practitioners have to set the tone – and to enforce expectations. This way they can ‘control’ their piece of the world. In this way both the immediate supplier and supply chain extension can operate transparently.

Issues

The issues are reasonably well known but the following are key:

Lack of political ‘will’ – there is often the feeling that nothing can be done. Political will in this context applies to organisations, it is not always about politics. In the procurement context, procurement practitioners have to set the tone- or find the ‘will’ for transparent procurement.

Apathy – it is up to ‘others’. It is too hard. This is worse to manage than the problem itself.

Cost – in terms of time and money – the true cost is staggering.

‘Too hard’ – to have to manage or deal with.

Lack of policy/procedures – all too often procurement has policy/procedures in permanent draft and this can hinder clarity around expectations or behaviour and around financial delegations, spend and procurement practitioner role and responsibilities.  This gap can lead to inappropriate behaviour.

Lack of consequences – this sends a bad message that says that corrupt and unethical behaviour is okay.  There needs to be known consequences – for both buyer and supplier.

The way ahead. – There should be a mix of: (a) education, (b) systems and procedures, (c) compliance and (d) training.

There is no easy fix. Procurement has to gets its house in order and provide a transparent direction.

How to change

The means of change is both simple and complex – and is a mix of statutory, economic, the ‘will’ to make it happen and having clear consequences.

It is the role of the buyer to make it clear that unethical behaviour will not be accepted and will not be tolerated. There will be consequences for such actions. They also need to provide a clear vision, direction and state clearly the requirements expected.

Statutory – this is easy to do – to abide by the legal framework – but there needs to be more than this.  It is a start though, and will provide direction as well as intent.

Political ‘will’ – this applies also to the internal politics of organisations – mainly from management. There needs to be vision and direction from both management and procurement practice.  Procurement needs to be vocal about the need for enforcing appropriate ethical behaviour.

Possible answers

There is no one magic answer but… it is everybody’s responsibility to initiate and work to achieving procurement transparency. While in some countries there is a systemic problem, this is not the case in others.We cannot say ‘everybody does it’. Like most things change starts with a first step – and more positive actions going forward.

Both buyer and supplier have to be prepared to ensure a transparent process. To that end we need the awareness of the change and the necessary mindset to occur. The mechanism for change needs to be clarified. This needs to come from the top, along with input from the procurement team.

A strong focused attitude is required to remove corrupt practices. In fact, we need to promote suppliers that act ethically. It is even more important for both buyer and supplier be focused and to communicate with each other.

Change can come about by having a clearly outlined organisational vision and direction. Having a clearly defined Code of Ethics with consequences is one thing but there is a need for follow through. Actions are vital and send clear messages. This in effect provides a mechanism for ‘walking the walk and talking the talk’.

Buyers badly need an attitudinal change from the ‘we cannot change’ to ‘we can – and must change’.  What is required is transparency of actions from both buyer and supplier.

In instances of corrupt behaviour there is a need for reporting and monitoring – both internally and externally.  Reporting: all instances corrupt behaviour needs to be reported to procurement management and the governing authority.

Education

Buyers have a responsibility to educate suppliers that offers of ‘gifts’ or monies is not acceptable. This should include the whole supply chain.

Tender documents

Buyers have an opportunity to outline this issue firstly in tender documents and finally, within the contract. This will provide a clear message. What should also be included are the consequences of unethical practices.

A way forward – procurement process

  1. Increase the transparency of procurement through availability of documents and data on procurement.
  1. Contracting authorities should make all necessary efforts to ensure that public procurement is market-based, generating a sufficient amount of tenders.
  1. Invest in professional and centralised procurement organisations. Ensure that procurement officers are well-trained, experienced and adequately paid, including regular screening and job-rotation of these staff.

Of these 3 points – the best way forward is to focus on training and promoting of experienced staff who can lead the way.  Well educated staff can promote the need for procurement transparency and actions.

Inconsistency is not the answer and can send wrong messages.  What is needed:

  1. Policies and procedures
  2. Code of Ethics
  3. Clear corporate values
  4. Clear hiring practices – the right ‘fit’.

Clear Corporate values – the organisation needs to have clearly outlined corporate values that are abided by.  Management must ‘walk the walk and talk the talk’. This is powerful and effective. Actions are key. The values need to be promoted and acted upon. This provides a mechanism in which the organisation states clearly where the organisation stands – as well as the expected actions of staff – and consequences.

Clear hiring practices – this is essential so that the organisation has staff that ‘fit’ the organisation and its values. This will reduce the likelihood of unethical behaviours arising in the workplace.

Policies and procedures – Management needs to implement a clear policy and procedure on ethics – and more importantly to enforce those policies and procedures.  Staff will pick up on talk but no action.  The policy needs to be practical in nature.

Code of Ethics – A code needs to be practical and have clearly defined organisational expectations.  However, most codes are bland in nature and most do not clearly spell out the consequences of unethical behaviour.

Example of Code

The Code of Ethics provides a mechanism for guiding staff behaviour and identifying what behaviour is acceptable – and what is not.

We will not tolerate:

  1. Corrupt practices
  2. Unethical practices
  3. Bribery
  4. Other

Management

It stands to reason therefore that unethical practices are not ever acceptable and there should be clearly defined consequences. There is value in getting the process right

Both management and procurement have a huge role to play in providing a positive direction.  Leadership is a must, whether it be from management, but certainly essential from procurement.

There is a need for a positive direction for this throughout the tender and contractual process. Ensuring a ‘pure’ process will allow us to work towards reducing unethical behaviour in all its forms. We should promote and publicise positive behaviours so there are ‘good news’ stories.

We need to move from saying ‘it is not okay’ to positive actions ensuring that the procurement process is undertaken in an ethical manner.

Suppliers

Suppliers have a big role to play. Suppliers often are not aware that they should not provide ‘gifts’ and mostly stop when advised that that practice is not acceptable. Procurement practitioners have a role to play to provide clarity and requirements about this issue. If the behaviour persists or actions such as collusion occur then consequences must follow.

Most suppliers play by the rules – even if they are not totally aware of all the ‘rules’, they play their part.  However, there are some that do not.

Collusion and corruption are distinct problems within procurement, yet they may frequently occur in tandem, and have a mutually reinforcing effect. They are best viewed, therefore, as threats to procurement integrity.

Consequences

Clear consequences – Clearly defined documented consequences are identified within any Code of Ethics.  The consequences need to be spelt out such as: :

  1. Barred from tender process
  2. Barred from future business
  3. Dismissed from organisation.

Is this possible?

In one word – Yes! Both buyers and suppliers need to be proactive and ensure a clear and transparent process.

The consequences should be strong in nature. Publicity and reporting are tools that need to be used.  Bribery and corruption operate in the dark. What is needed are actions, discussion and publicity. Bring it out into the open. This assists transparency in which the procurement process and a tender/contractual process rules and regulations are abided by.

We can take a step forward… and another… so we can operate in a ‘clean’ space and be a part of an industry we can be proud of. We cannot let the actions of a few diminish what is being achieved daily and above board.

Name and shame?  Is this viable, workable or effective? There is a case for forms of name and shame. A more effective way is to include on an organisation website. Removing from future work is a practical step.

SUMMARY

Action needs to occur to reduce the risks in the tender/procurement cycle. This will ensure that there is transparency, fairness and an open process. By being aware of red flags – or areas that can be abused – then procurement staff can reduce unethical behaviours significantly.

A line has to be drawn and a zero tolerance approach is essential. Procurement has to be transparent and both buyer and supplier have to be accountable. Procurement has a role to play and each procurement practitioner has a responsibility for ethical behaviour.

When looking at the procurement ‘world’, it is essential that both buyer and supplier have responsibilities to ensure that the tender/procurement/contractual process is run well. There is the need to have an open, transparent, fair and ethical process in place for the whole procurement and contract process.

We need to take positive actions to ‘clean up’ those that do not abide by the rules – whether statutory or otherwise. We need to promote procurement principles better.

These principles are not just ‘words’. They are necessary to so there can be confidence in procurement through to contract award. Buyers have a responsibility to ensure the principles are incorporated throughout. Suppliers have a responsibility to ensure ethical practices are followed – by themselves as well as requiring their supply chain to operate ethically.

Procurement staff need to ensure that the process is carried out so there is no doubt as to how the decisions are made. In most instances this occurs and it is important that the reality and perception are the same.

‘Walking the walk – and talking the talk; – Are you doing enough? It is up to procurement professionals to do so. This will provide clarity and direction. Meaningful actions have to follow the words.

There has been a lot of discussion about unethical behavior and corruption. There is one way in which we can manage to improve – and that is to be proactive against negative behaviours.

‘Walking the walk – and talking the talk’ – is not always easy as we can get bogged down in our everyday work. We should focus on the strategic side of procurement as well as communicating widely, ensuring that our own process is transparent and suppliers know of our requirements.

When others see your actions – they can look to our actions. Our behaviours can influence others.  If we only ‘talk’ and do not ‘do’, then we are sending mixed messages – we need to back up the words with appropriate behaviour. There is the danger for all procurement people that our actions are suspect – this is not what we would want.

This is all a part of strategic procurement – it should not be seen as a ‘need to get around to’ – it needs to be ‘let us do it now’ behaviour and ‘this is how we will continue in the future’.

You cannot separate the two issues – procurement and ethics go hand in hand.  Running an unethical process is unacceptable for both buyer and supplier.  The value of getting it right cannot be under-estimated.

Corruption is never acceptable and procurement has a question to ask itself: Am I doing enough?  Can I do more?

Lastly, the stated cost of corruption of US$1 trillion per year – imagine what  programmes could be put in place with these monies? Procurement has a role – are you a part of the solution? We badly need solutions and from well trained procurement staff and suppliers.

What if we do nothing?
This is not an option if we want to put a stop to this.  We are at a tipping point and impetus has to be applied to make a change.

Margaret’s book ‘Contract Matters: Procurement and Ethics/Business and Ethics’ can be obtained through www.contractmatters.com /email: margaret@corpcontracts.co.nz($30).

 

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About Author

Procurement and Supply Australasia (PASA) is the leading provider of information and education to procurement and supply professionals throughout Australia and New Zealand. PASA supports the largest community of engaged procurement stakeholders in the region, through its renowned series of events, publications, awards, plus various community and network building activities. PASA is a trading name of BTTB Marketing, for many years recognised as the leading producer of conferences and events for the procurement profession in Australia and New Zealand. Whether producing under the BTTB, CIPSA Conferences or now PASA brands over the last ten years, our events have consistently led the market in terms of both educational and networking opportunities.

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