SAS Fraud ReportResearch undertaken for a SAS Report indicates that British companies, on average, lose significantly more money to procurement fraud, and the country is far more reliant on ineffective manual detection techniques, than other nations. In effect it seems that British businesses struggle to tackle procurement and occupational fraud. Part of the problem is that they continue to use outdated manual controls and rules-based software detection – which are, today, insufficient.

These figures (from this Report – see below) are only the tip of the iceberg.” said Laurent Colombant, Continuous Compliance and Fraud Manager at SAS. “Procurement fraud is notoriously difficult to detect and measure. This is due to a lack of preparedness and awareness, as well as its bugbear status, among businesses. As a result, the true scale of the challenge is almost certainly underestimated. There is one positive to take from the UK figures appearing so high – it shows that businesses acknowledge the danger and are aware it is happening around them. Yet honesty is only the first step, and the UK compares poorly to other countries in its reluctance to invest in the latest detection technologies. Until British businesses take a hard look at their detection capabilities and modernise their processes, they will continue to fall behind.

Laurent Colombant,< Continuous Compliance and Fraud Manager at SAS
Laurent Colombant, Continuous Compliance and Fraud Manager at SAS

Key statistics

The research shows that:

  • some 24% businesses are, at some point, victims of collusion between suppliers
  • 21% have caught employees collaborating with vendors where those employees own a stake
  • more than 30% of businesses have been subjected to contract bid rigging
  • over 40% suffer from duplicate invoices.

Other results from include:

  • 59% of businesses have suffered from travel and expenses fraud
  • 49% have caught employees committing fraud using company credit cards
  • 40% lose between €150,000 and over €400,000 a year due to procurement fraud
  • less than 30% undertake regular audits to assess or investigate procurement fraud
  • only 12% use some form of advanced analytics technologies to enhance anti-fraud activities to combat procurement fraud
  • only 9 per cent have adopted AI tech relevant to fighting fraud.

Fraud: a public menace

Procurement fraud occurs when employees and suppliers practise deception during the contract bidding process or during the course of the contract. This can range:

  • from employees colluding with preferred vendors (to give unfair advantage during a procurement process)
  • to suppliers submitting multiple invoices for a single item.

While procurement fraud is a serious crime that carries a jail sentence in many countries, perpetrators will often take the risk. Sometimes this is for pure financial gain. Other times it can be for personal revenge.

According to SAS, the UK faces an uphill struggle in the fight against procurement fraud. A quarter of businesses have at some point suffered collusion between suppliers. Slightly less (21%) have caught employees collaborating with vendors they share a stake in – higher than the EMEA average of 16%. Then there is contract bid rigging (31%) while 43% do not pick up on duplicate invoices (both these are significantly higher than the EMEA averages of 25% and 27%).

Occupational fraud, where employees exploit their position for unlawful gain, is also endemic. A majority of businesses have suffered from travel and expenses fraud, with almost half catching employees abusing company credit cards. Both these fraud types are more common in the UK than in any other country surveyed during the research.

The financial implications

The financial cost of procurement fraud is staggering, with UK losses particularly high. The Report suggests that some 40% of UK companies lose between €150,000 and €400,000. For SMEs such amounts can be the difference between survival and collapse.

On a more positive note, SAS suggests that UK companies are less likely to believe fraud losses are negligible). This suggests a greater awareness of the damage inflicted by procurement fraud. On the other hand it begs the question why they do not do more to address their losses.

The underlying problem: deficient detection

From the SAS research it would seem that British companies take an overly relaxed attitude to auditing. They largely fail to exploit relevant, and especially newer, technologies – including advanced analytics and artificial intelligence (AI) – in the fight against fraud. Less than a third hold regular audits into procurement fraud (compared to an EMEA average of 46 per cent).

To add to the problem, UK companies are more likely to process procurement applications manually. Almost half do this. In effect they depend on staff, who may be the fraud instigators, to report wrongdoing. The country’s most common detection techniques are manual controls, rules-based software detection and anomaly detection: these are insufficient because such methods take too broad-brush approach to an elusive crime.

For example, and according to SAS, These techniques are self-limiting. The amount of data they can process together with the number of false positives – genuine anomalies that trigger alerts – do more to obscure problem than identify them. Where employees are integral to the process, there is the risk that they will hide fraudulent actively or fly under the radar expecting to succeed because of a failure to catch errors or the lack of resources.

Solutions

Advanced analytics and AI solutions offer businesses more up-to-date mechanisms to detect procurement fraud, to stop it before serious economic damage happens. However, uptake of such solutions among UK businesses is poor. Only 12% of companies use advanced analytics technologies – such as algorithm-based software and machine learning capabilities.

While the UK’s AI adoption is broadly in line with most other countries, it compares unfavourably to places like South Africa, Norway or Poland. Yet even here, the most advanced (Poland) sees a penetration of only 10%.

An additional factor SAS describes is that too many businesses believe they lack the skills and resources to implement advanced analytics and AI into detection processes. Some of these challenges are particularly acute in the UK. The skill shortage around advanced analytics is believed to be higher than in any other country: 37% (of businesses) struggle to hire the right talent.

Enterprise Times: what does this mean

Fraud and corruption are insidious. They eat at an enterprise’s (or a governmental organisation’s) success from within. The effect can be to destroy the financial basis of both value creation and employment.

To Enterprise Times one simple form of fraud stands out. Payment of duplicate invoices. In an ERP-dominated environment most would believe such a form of fraud is impossible: surely payment against a specific purchase order can happen once and once only? Yet organisations exist which specialise in finding just this form of fraud, because it is so ubiquitous and so valuable.

Compounding all of the above is a simple fact drawn out by the SAS Report: for some reason business leaders incline to manual controls, preferring them over AI (37%) and advanced analytics (34%) techniques. It is not clear why. Simple conservatism? A reluctance to address the problem? Fear of new technologies which management does not understand? Probably it is a blend of these. But the effect is to cost enterprises dear.

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Charles Brett is a business/technology analyst consultant. His specialist areas include enterprise software, blockchain and enterprise mobility tech (including metering). Specific industry sectors of interest and experience include finance (especially systems supporting wholesale finance), telecommunications and energy. Charles has spoken at multiple industry conferences, has written for numerous publications (including the London Times and the Financial Times). He was the General Chair of the bi-annual High Performance Systems Workshop, 2005. In addition he is an author and novelist. His Technology books include: Making the Most of Mobility Vol I (eBook, 2012); Explaining iTunes, iPhones and iPads for Windows Users (eBook, 2011); 5 Axes of Business Application Integration (2004). His published novels, in the Corruption Series, include: The HolyPhone Confessional Crisis, Corruption’s Price: A Spanish Deceit and Virginity Despoiled. The fourth in The Corruption Series - Resurrection - has is now available. Charles has a B.A. and M.A in Modern History from the University of Oxford. He has lived or worked in Italy, Abu Dhabi, South Africa, California and New York, Spain, Israel, Estonia and Cyprus.

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