As bakery chain Patisserie Valerie plunges into administration following allegations of fraud from third party contractors, we explore the issues around procurement fraud and how it can be prevented.
Fraud within any area of a business is a devastating occurrence, but fraud perpetrated by a third party is often the hardest to understand, asses and protect against. Whilst it is not often considered, the issue has been in the news recently with the announcement that the Financial Reporting Council (FRC) commenced an investigation in November 2018 into the audit by Grant Thornton UK LLP (GT) of the financial statements of Patisserie Holdings Plc for the years ended 30 September 2015, 2016 and 2017. The investigation will be conducted under the Audit Enforcement Procedure. The FRC also commenced an investigation under the Accountancy Scheme into the preparation and approval of Patisserie Holdings Plc’s financial statements and other financial information by the former Chief Financial Officer, Christopher Marsh, a member of the ICAEW.The firm itself went into administration and firmly closed its branches at the beginning of 2019. The news comes as research by Dun & Bradstreet revels that third-party risk management remains a top business concern for procurement and compliance professionals.
The 2018 Dun & Bradstreet survey of procurement and compliance professionals revealed that customer/vendor due diligence and ongoing supplier/vendor monitoring were among their top concerns, yet many companies have struggled to implement automation in their third-party risk programs to help combat these issues.
“Organisations are still struggling to glean true insights because their data is spread out, housed in disparate systems across the company,” said Brian Alster, global head of procurement and compliance, Dun & Bradstreet. “Utilizing automated solutions that manage data and workflow to monitor and report problems can save companies time and money, which can ultimately lead to more profitable growth.”
As Brian highlights, prevention is far better than the cure in the case of fraud, particularly procurement fraud. Laurent Colombant, fraud business solutions manager, SAS commented on how businesses such as Patisserie Valerie could prevent fraud within the procurement space.
“Procurement fraud costs UK businesses up to 5 per cent of total procurement spending every year. As we have seen with Patisserie Valerie, fraud is often committed by suppliers and in two thirds of cases assisted by internal employees who exploit gaps in outdated or manual fraud prevention techniques. UK institutions must act now and overhaul their fraud detection capabilities.
“The most effective way to combat procurement fraud is to stop it happening in the first place. To be both successful and efficient at finding potential fraud you need to go far beyond simple rules-based logic that lie within ERPs.
“There are three key things to do. First, join up your systems. Make sure that you have a holistic view of transactions so you can quickly and confidently decide if they’re fraudulent. Second, automate your team’s routine tasks so that they have more time for evaluating potential threats. And third, employ advanced analytics and adopt a roadmap towards artificial intelligence and machine learning techniques. Fraud tactics evolve all the time, so static analytical models quickly become stale. However, machine learning can provide self-learning fraud management systems to keep ahead of the fraudsters.
“Businesses need to take advantage of an advanced analytics toolkit to get a deep understanding of what’s going on from all the available information – that way they can quickly spot patterns and anomalies to prevent fraudulent activity before it’s too late.”
As such, companies should explore their systems and implement as many processes to ensure that they remain capable of noticing and preventing procurement fraud as quickly and efficiently as possible. For more information on the Patisserie Valerie case and insight from our network of experienced legal experts, follow Acquisition International on social media or SUBSCRIBE for regular updates and information.