John Cushing, CEO and Founder of Qynn, explores how AI and data analytics can help companies combat the increasing challenge of procurement fraud
Protecting business and supporting growth through finding the best market rates and products has always been procurement’s main objectives. However, achieving this is a lot more difficult than it may seem. Scouring the market, conducting due diligence and compiling historic data on other companies can be very resource intensive and time consuming, particularly for small businesses. With so much to keep track of, inconsistencies or unscrupulous activity can easily go undetected during the Know Your Supplier process, which can unfortunately see companies sleepwalk into doing business with a malicious organisation or individual.
A report released by Crowe LLP, in partnership with Experian and the University of Portsmouth, revealed the annual cost of private sector procurement fraud is estimated to be £121.4 billion each year. Meanwhile, PwC estimates that nearly 30 percent of organisations have been victims of procurement fraud in the last year, highlighting the scale of the problem.
Yet, risks exist even within a company’s own supply chain. Typically, companies have large supply chains that span multiple suppliers and contractors across the world. As such, it is very difficult for a procurement officer to get a clear view of exactly what is going on at every part of the chain. Amidst this lack of clarity and communication, a supplier could easily sell the same equipment at a higher price to one department than it sold to another. This amounts to fraud and if not stopped could cause businesses to lose thousands of pounds.
Procurement leaders need to build a complete picture out of this complex and ever-changing puzzle. Sound decision making requires insight and clarity, which is becoming easier through data analytics and artificial intelligence.
How can analytics help?
Carrying out checks on existing and prospective business partners has never been more important. This is where artificial intelligence (AI) data analytics can provide a lifeline and an all-seeing eye into business networks. AI can harvest company information from various sources, and analyse in real-time any changes in shareholder structure, country of operations or incorporation; which can help raise red flags in a timely fashion and so reduce the opportunity for fraud. Importantly, this can be done in an instant, reducing the time and resource required by orders of magnitude compared to manual due diligence methods.
All this enables procurement teams to paint a clearer picture of where a potential supplier sits within a group structure. This can be particularly helpful when understanding whether your contract should be held further up the group structure or with the supplier itself. It can also help understand the backgrounds of individuals within the company, which is an incredibly important part of due diligence. Finding out their employment history, who they were associated with and who they have done business with can shed light on any suspicious activity and alert procurement teams well in advance.
Further, analysing both structured and unstructured data from within the company as well as externally could also help to reduce in-house fraudulent collusion; whether as part of bid rigging, bribery, phantom vendors or split purchases.
Having all the right data is just one half of the battle though – ensuring the right people are on board to draw out insights and act on them to combat fraud is essential. Procurement professionals still need to decide whether there are any systematic problems that have been highlighted by the data that need addressing. Does the organisational structure lend itself to fraudulent cases? Are there any changes that could be made to counteract these issues? Analytics by itself cannot answer these questions nor implement the solutions – but it can point experts in the right direction to implement positive change.
We have seen AI and data analytics disrupt industries across the world, and it is set to help procurement professionals as well. Thanks to the automated ability to identify anomalies within the entire procurement supply chain, detecting fraud will be simpler and easier for all.