Why the best defence is a good offence.

National Leader of Forensic Services, Michael Cassidy and Associate Director, Karyn Lander in BDO’s Forensic Services[SA1] [SG2]  team in Perth, open up about the most common pitfalls for businesses when it comes to the risk of conflicts of interest (COI) in procurement, and how to proactively identify red flags and navigate them.

If you are a business owner and wondering where to start, the first thing to identify is whether something doesn’t look or feel right. “If it doesn’t pass the pub test, there’s a good chance that something is not right,” Mr Cassidy explains.

Consequences for not acting on identified risks or red flags in the procurement process can include financial losses such as being overcharged for goods or services or paying for goods or services that were not received or are of inferior quality. “In some instances, we have seen payment made where there were no goods or services rendered,” Ms Lander explains.

So how and why does this occur? One of the common issues is the lack of effective controls in an organisation’s procurement process, including flaws or omissions in the declaration of COIs, proactive integrity checks of suppliers and the verification of the receipt of goods or services.

Mr Cassidy and Ms Lander, suggest undertaking a search of public databases to verify the business owners of a current or potential supplier and identify if there is any adverse information of concern around them or the entity. Beyond that, proactive controls should also include requirements for employees, particularly those involved in procurement, to declare any COIs prior to the commencement of any new procurement process. Such controls could also be incorporated into annual declarations.

The importance of effective proactive risk controls is not restricted to small start-ups or immature businesses. Mr Cassidy and Ms Lander both stress this issue is something that is commonplace from SME’s through to government. “Ignorance is not a defence anymore and trusting someone is not an effective control,” cautions Mr Cassidy.

So how does a business approach the conversation? You will need to consider your organisations specific financial crime risks together with the adequacy of any controls in place to mitigate those risks. “It is easy to do nothing…until it goes pear shaped,” Mr Cassidy explains. It is far better to start with your first and best line of defence – proactively arm your people with both the knowledge and confidence to ask questions.