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Pre-empting procurement fraud

Undetected conflicts of interest play a major part in enabling fraudulent activity. In South Africa, the King III Code of Conduct has dramatically increased the awareness of the need for stronger corporate governance that protects all stakeholders involved. Nonetheless, organisations still stand to benefit from more concrete tools, controls and processes that drive improvements in corporate governance and keep them on the right side of the law.

Inoxico CEO André Stürmer

South African risk solutions provider, Inoxico, actively enables this drive through the development and provision of a number of products and services. According to CEO André Stürmer, organisations need to come to terms with the true impact of procurement fraud on the business and on the supply chain in particular. “As one of the most costly types of financial crimes, procurement fraud affects businesses across a broad spectrum of industries, particularly during times of an economic downturn,” explains Stürmer “Recent studies by the ACFE estimate organisations worldwide lose about 5% of annual revenues to fraudulent activities, with 42% of fraudsters being employees, 38% managers and 18% owner/executives. PwC’s Forensic Services Practice in 2011 stated that 36% of internal economic crimes were carried out by senior management, compared to only 17% in 2009.”

The correlation between conflict of interest and fraud makes targeting conflict of interest through appropriate management of relationships between employees, suppliers and other stakeholders an effective means of pre-empting fraudulent activity. “The challenge is that many businesses rely on self-disclosure. While trust remains an important element to foster in any organisation, conflicts of interest are inherently dynamic. Scanning for new conflicts is no longer enough, organisations also need to regularly revisit fully disclosed relationships to ensure that these are still being controlled in the best interests of the business.”

According to Stürmer, conflicts of interest – and procurement risk – can be drastically reduced by tracking and auditing both company and individual associated relationships within the organisational ecosystem, the premise behind the company’s flagship offering Inoxico Matrix. “Investing in pro-active solutions and processes not only protects the supply chain from fraud-related losses saving time and frustration, it also safeguards the company from potential reputational damage, the value of which is incalculable.”

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