Supply chain fraud in the African context

| 0 Comments
Lucille Jansen van Vuuren.jpgFraud and corruption in the supply chain management (SCM) environment, such as unauthorised rebates, kickbacks and dubious vendor relationships, are prevalent in the business and public sectors. Lucille Jansen van Vuuren of Volition Consulting Services discusses the nature of Africa’s beast, in this month’s SmartProcurement.

The actual cost associated with supply chain fraud is difficult to determine, but various research studies indicate:
• More than US$1-trillion is paid in bribes each year (World Bank report).
• Besides poverty and unemployment, corruption has been identified as a topmost national problem (UNECA African Governance Report)
• Company fraud, theft and corruption in South Africa is costing the business community over R100-billion a year, according to new data released by audit firm BDO (SAPA)
• The annual cost of fraud in companies has been estimated by numerous surveys to be between 1 to 7% of turnover. (Various surveys)

Where does fraud occur in the supply chain?

Supply Chain Fraud.jpgThe inbound and the outbound supply chain are vulnerable to fraud risk (see image alongside).

In the inbound supply chain the risk is predominantly focused on the procurement process, several steps of which are vulnerable to fraud:
• Specifications
• Solicitation
• Evaluation and award
• Receipt and / or confirmation of service delivery
• Supplier Payment

Most companies focus on this aspect of the SCM process when discussing anti-fraud and corruption measures.

The outbound Supply Chain’s risks are mostly centered on warehousing, shipping (packaging) and delivery.

Fraud Triangle.jpgThe fraud triangle – an African view

While there may be consensus on the severity and consequences of corruption, there is disagreement around how to understand its roots and dynamics, and on the policy solutions to combat it.

Amongst the theoretical explanations of the problem in the African context, the most prevalent are the institutional, public choice and cultural theories.

Fraud Triangle explanation.jpgThe institutional theory focuses on what it considers as the weak institutional structures, processes and capacities of African countries; arguing that Africa operates more through informal structures and processes, with an ‘economy of affection’ that allows for flexible and manipulative rules of political and economic transactions in which negotiations through bribery are a major means of securing agreements, contracts and political consent.

The cultural theory contends that embedded in Africa’s social structure - its values, mores and social organisation - are traits conducive for corruption to thrive. Linked with the low per capita income prevalent in the continent, this is a recipe for individuals to eke out their meager salary with what is seen as taking only a ‘drop from the ocean’.

The push for survival, personal wealth and betterment which constitutes a capitalist system generates opportunity-seeking behaviours of various kinds and promotes a generally unhealthy approach to business and transaction execution. Underhand or more subtle corrupt practices constitute a driving force of the system. (International Conference on Institutions, Culture and Corruption in Africa, 29–31 October 2008, Addis Ababa, Ethiopia)

How do these theories relate to the well-known Fraud Triangle?

What to do about fraud?

Actions against corruption.jpgWhilst the risk of fraud cannot be eliminated entirely, an institution can implement or have controls in place to reduce the likelihood of it occurring. Effective fraud risk management is not one-dimensional and includes the following actions: (see image alongside)

Instances of fraud and corruption in the supply chain cycle are not easy to detect, prove or prosecute. Prevention is always better than cure. The amounts paid to settle any claims resulting from exposed fraud will always be secondary to the loss of reputation and integrity that companies / institutions may suffer for being associated with such claims.

Join Volition at the SAPICS conference and learn more about how to develop and implement an effective supply chain fraud risk strategy.

Lucille Jansen van Vuuren is a business unit manager at Volition specialising in procurement, outsourcing and business process development. For more information contact her at LJvanvuuren@volition.co.za

Leave a comment


SmartProcurement Newsletter
X

Please enter your details below to receive the SmartProcurement Newsletter for FREE on a regular basis.

As part of the SmartProcurement Newsletter you will be receiving World Class Procurement News, Tools, Tips, Tactics, Procurement Training updates, Upcoming Events, and the latest Procurement Career Openings.

* Email Address:
* Title:
* First Name:
* Surname:
* Company:
  Position:
* Country:
* Public / Private:

 

Career opportunites

Head: Supply Chain Management (P6)

  • <500 000 >500 000 Limpopo Permanent Procurement Management Supply Chain
North east of the Tropic of Capricorn, just ...More

Purchasing and Supply Manager

  • <500 000 >500 000 Gauteng Permanent Procurement Management Supply Chain
Purchasing and Supply ManagerThe CSIR has a vacancy ...More

Senior Manager Public Sector

  • >500 000 Gauteng Permanent Procurement Management Projects / Category Management
 Senior Manager Public SectorTotal Cost to Company: R1.1mil ...More

Senior Manager: Mining

  • >500 000 Gauteng Industrial Engineer Permanent Projects / Category Management
Senior Manager: MiningTotal Cost to Company: R900k – ...More

SUPPLY CHAIN MANAGER

  • >500 000 Gauteng Permanent Procurement Management Supply Chain
SUPPLY CHAIN MANAGER(Total Cost to Company R750k – ...More

Master Data Management Advisor

  • >500 000 Gauteng Permanent Procurement Management Projects / Category Management
 MASTER DATA MANAGEMENT ADVISOR(Total Cost to Company R750k ...More

PRO - Performance Reporting

  • >500 000 Permanent Procurement Consultant Procurement Management Projects / Category Management
PRO - Performance ReportingTotal Cost to Company: R800k ...More

PRO - Risk & Governance

  • >500 000 Gauteng Permanent Procurement Management Projects / Category Management
PRO - Risk & GovernanceTotal Cost to Company: ...More

Supply Chain Site Manager

  • >500 000 Gauteng Permanent Procurement Management Supply Chain
Supply Chain Site ManagerTotal Cost to Company R1mil ...More

Chief Financial Officer

  • >500 000 Gauteng Permanent Procurement Officer / Specialist
Chief Financial OfficerTotal Cost to Company R1.5mil – ...More

Process Engineer- WMS

  • <500 000 >500 000 Industrial Engineer Permanent Projects / Category Management Western Cape
Process Engineer- WMS(Total Cost to Company R350K – ...More

Forecast Analyst

  • <500 000 Analyst Permanent Procurement Management Western Cape
Forecast Analyst(Total Cost to Company R350K – R500K) Location: ...More

Group Category Manager: Indirects

  • >500 000 Permanent Procurement Management Projects / Category Management Western Cape
Group Category Manager: Indirects(Total Cost to Company R700K ...More

Group Category Specialist: Chemical

  • >500 000 Gauteng Permanent Procurement Officer / Specialist Strategic Sourcing
Group Category Specialist: Chemical(Total Cost to Company R700K ...More

Sourcing Specialist - 3rd party

  • >500 000 Gauteng Permanent Procurement Officer / Specialist Strategic Sourcing
Sourcing Specialist - 3rd partyTotal Cost to Company ...More

Global Procurement Lead (Processing)

  • >500 000 Gauteng Permanent Procurement Management Supply Chain
 Global Procurement Lead (Processing)Location: JohannesburgTotal Cost to Company ...More

Global Supplier Performance Manager

  • >500 000 Gauteng Permanent Procurement Management Supply Chain
Global Supplier Performance Manager Location: Johannesburg  Cost to ...More

Group Customer Service Lead

  • <500 000 >500 000 Analyst Gauteng Permanent Procurement Officer / Specialist
Group Customer Service Lead  Location: Johannesburg As the ...More

Business Intelligence Manager

  • <500 000 >500 000 Gauteng Permanent Procurement Management Supplier / Business Development
Business Intelligence Manager Location: JohannesburgLead the development, implementation, optimization ...More

Group Procurement Manager

  • <500 000 >500 000 Gauteng Permanent Procurement Management
Group Procurement Manager Location: Johannesburg  A Global Organization ...More