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How to Prevent Supply Fraud

There are many opportunities for people to act or present themselves as a supplier to commit fraud. If you know what to look it will be easier to spot the red flags and prevent your company from paying false, inflated, or duplicate invoices.

Things to Watch for:

  • Differences in the purchase order and invoice
  • Unusual amounts due
  • Emails from non-company addresses
  • Requests for payments to be sent to different addresses or locations you know to be residential areas
  • Unable to locate invoiced goods in inventory
  • Differences between invoice amounts and receiving records that would indicate inflated costs
  • Invoices to the same vendor with similar amounts due
  • Invoices with different amounts but identical purchase order number referenced

One strategy fraudsters use is to send invoices to companies for routine goods like copier paper, office supplies, ink, pens, pencils and commonly used items. The hope is that the accounts payable employee sees what appears to be a genuine looking invoice and tosses into the pile of other invoices all to be paid at the next check run. The bad thing is that fraud is getting more complex and harder to spot, but there are some precautions you can put in place to help fight fraud.

Educate your staff – Make sure accounts payable employees are well trained, shown what scams and fraud techniques are being used today, and have resources to access to stay aware of anything in your area that may be going around the local businesses. Check with your local Chamber of Commerce or Better Business Bureau to see if any notification process is in place with scams come to light.

Set Up and Follow Procedures – Before any invoice is paid, have rules in place to verify and authenticate. Check the internally generated purchase order against the invoice and make sure they match each other. But not only that, check to make sure the goods received also match the quantities ordered and billed for. Wither procedures in place and followed, you can significantly reduce the chances of any fraudulent invoice being carelessly paid.

Verify New Suppliers – Before adding a new supplier to the approved list, do your due diligence. Check to be sure the company website matches what is being said. Contact the BBB closest to the potential supplier to inquire about complaints. Depending on the distance involved, you may also be able to go for a visual inspection or schedule a tour. The amount of business you expect to do will determine how far and what steps you need to take to verify the authenticity of the business.

One of the best ways to implement all of this is with the use of technology. Utilizing a cloud-based purchasing system like Bellwether’s ePMX: will allow you to automate many of these processes, match invoices and purchase orders, create audit trails to make it easier to spot potential fraud, and have built-in alarms and triggers to spot trouble areas.

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August 29, 2013
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BY Bellwether
Purchasing and Procurement News from Around the Web

Today we wanted to share links to some different articles and topics appearing in the news. Take a look and see if these spark some ideas of things you could be doing in your role as purchasing manager or maybe some things you shouldn’t be doing!

  • First up is a release from the Institute for Supply Management. The July 2013 Manufacturing ISM Report On Business® shows some interesting facts and figures that reflects the current status in the United States for the month of July 2013. This big picture view can help see where you line up against the whole. It may be that you think you are doing poorly, but in reality, compared to others, your function is doing well under the current conditions.
  • Office supplies are a typical part of every business, no matter what industry, you have to have the basic supplies necessary for your office to function. With the coming merger of OfficeMax and Office Depot that will only leave 2 Big office supply companies – Staples and the newly created merged company. This article discusses the impact and also looks at competition from retailers like Walmart and Amazon who are trying to compete for your office supply dollars. Find out what it means for your business.
  • Here’s a great blog post entitled “Can we cut the cost of procurement itself?” Read Tom Linton’s take on this and join the discussion by commenting on his blog post. Let us know what you think by commenting on ours as well.
  • In this article “Procurement Promotes Competition”, they explore the variations on how procurement takes place in public (government) versus private (for-profit businesses) settings. This paragraph will get you started, but be sure to take a moment to read the entire article and comment below to let us know your take. “Economy in public procurement is not subject to a test similar to that of purchasing in the private sector: namely, good procurement contributes to profits and poor purchasing creates the risk of going bankrupt. Instead, the best way government entities demonstrate that they obtained the best terms available under the circumstances is to make use of competition between all those interested in, and qualified for, supplying the goods or services in question.”
  • Are you familiar with NASPO, the National Association of State Procurement Officials? According to their website “NASPO is a non-profit association dedicated to strengthening the procurement community through education, research, and communication. It is made up of the directors of the central purchasing offices in each of the 50 states, the District of Columbia and the territories of the United States. NASPO is an organization through which the member purchasing officials provide leadership in professional public procurement, improve the quality of procurement, exchange information and cooperate to attain greater efficiency, economy, and customer satisfaction.”
  • Finally, consider exploring some additional certifications like that offered by the UPPCC, the Universal Public Procurement Certification Council. From the About Us page – “The Universal Public Procurement Certification Council (UPPCC) is an independent entity formed to govern and administer the Certified Public Procurement Officer (CPPO) and Certified Professional Public Buyer (CPPB) certification programs. To date, the UPPCC has certified well over 10,000 professionals primarily within the US and Canada, but in other nations around the globe.”
August 27, 2013
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BY Bellwether
Purchasing Professional – Creating Training & Education

In the United States, the average amount of money spent on training purchasing and procurement professionals is about $800/year and 28-30 hours per year. The biggest and best companies provide about 100 hours per year in training. That’s much better, but by comparison, sales professionals take an average of 200 hours in training for their profession. What can you do personally to educate and train yourself to become more valuable to your company? What can your company do to provide more training to its employees?

There are many different training programs available for various cost levels. Today we thought we’d explore some nontraditional methods you may want to consider to engage your employees. There was a service called Extranormal Technologies that just closed their business in July 2013. It provided a way to turn a text script into animated videos. Here are a couple of samples from YouTube:

 

Here are some other resources for you to do similar things with videos to create additional education and training for your employees:

GoAnimate:  Founded in 2007, it has now grown to service over 5 millions individuals, schools and businesses. At the time of this posting, business plans are priced at $25/mo, $38/mo, and $50/mo.

Muvizu: Users can create videos in as little as 20 minutes and just recently came out of beta in April 2013. The software can be downloaded and used at no charge, but you do have to pay to remove the watermark from your videos and with that you get full commercial rights, are able to sell or make profit from the use of the videos.

Moviestorm: This company has been around since August 2008 and has about 160,000 registered users. It is used primarily by film students to learn, develop and build their portfolios. However, businesses like Oracle Corporation and Fujitsu have used this software to create low-cost training videos. You can download a 14-day free trial and then there is a one-time fee of $225. Additional content packs are available for $75/each. But once you but it, unlike others, all creations, content and otherwise are your property. No watermarks or other fees.

iClone by Reallusion: iClone is one of only 3 (Muvizu, Moviestorm, and Autodesk Motionbuilder) animation software programs that allow animators to see the results of their work immediately using real-time WYSIWYG. You also get royalty free use of anything you create even when you use their asset library. Download a free 30-day Pro trial and then after that select from Standard ($79.95) or Pro ($199.95).

Autodesk Motionbuilder: Originally named Filmbox, it was renamed Motionbuilder when acquired by Autodesk. It is primarily used in film, game, and television. Real life use includes Assassin’s Creed, Killzone 2, and Avatar. You can download a free 30-day trial, but will have to go through a local reseller to purchase.

Powtoon: PowToon utilizes cloud-based software with its beta version being released in August 2012. It is free to use, but you will have a watermark, only SD video, and limited assets library. You can upgrade to your choice of two premium services. The Pro is $59/mo or paid annually equates to $19/mo. The agency plan is very feature rich and is $130/mo or paid annually works out to $57/mo.

August 22, 2013
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BY Bellwether
A More Intelligent Approach to Purchasing: Cost vs Price

We have discussed in this blog on several occasions the various aspects of working as a procurement manager including negotiation practices that help both sides to win. Today we want to examine another aspect, a bigger picture approach to price versus cost. These terms are often viewed as synonymous, but to the purchasing professional there are significant differences and it is in those differences that we can find a winning solution to improving everyone’s position.

In many industries there is very little wiggle room in the pricing of the goods being offered. Purchasing managers who focus all their effort into trying to get the price per widget down by a certain percentage to feel they have achieved something may actually be running down a path of less and less benefit. Suppliers may have a little room to adjust pricing if certain conditions and quantities are met, but in the end, they still have limits to what they can do because they are obviously in business to make money as well.

That’s where we start to look at cost instead of price. What’s the difference? Looking at the total cost means examining all aspects along the supply chain until it reaches your door. This approach can yield far greater savings to you while leaving room for your supplier to make the percentage profit they need to be successful and everyone wins.

 You should begin to examine every process, the people, paper, or software involved and see where waste is occurring. If this is a regular vendor you do business with then look at past invoices and contracts. Forget the price per widget and look at the other costs involved in the process. There may be certain areas, delivery fees, or other charges that jump right out. Others may take a more focused effort to discover what areas changes may take place in. Only after full examination will you be able to come up with opportunities for cost savings. It may be that waste is occurring in your own organization through inefficient processes. Upgrading to cloud-based purchasing software, though requiring an initial investment of money and resources, can lead to significant savings. If you want to see how Bellwether Software can help reduce your total costs and improve your position contact us today!

August 20, 2013
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BY Bellwether
A Successful Procurement Process Guide, Part 2

In this week’s first post we took a look at the first five tips for a successful procurement process: Don’t Be in a Hurry, That’s Your Job, Be Open and Transparent, Cross Your T’s and Dot your I’s, and Leave Room for Innovation. In this post we will explore five additional tips to round out the entire process.

6. Prepare Organized and Detailed RFQ’s

The more information you provide the better response you’ll get. Describe, in detail, the pricing terms you are willing to accept, lump-sum vs payment schedule, and any other details pertinent to your desired outcome. The more details you are able to include the better chance you’ll have of completing a successful match. Procurement software such as Bellwether can make the preparation of RFQ’s easy and efficient.

7. Establish Clear Tracking and Payment Arrangements

Do not be vague when discussing the details of the transaction when it comes to the money. Once a supplier is awarded the contract, how will they be paid, how often, and when will payments begin? Be clear so everyone understands how payment will be paid and avoid problems down the road. Of course, include these in the RFQ so everything is spelled out and the expectations are clearly understood by all parties. Outline tracking procedures for both delivery of the goods or services and for payments so everything can be in alignment.

8. Build Moral Compass into Procedures

Document every step of the process and record all decisions so that it can be available and examined by both parties and their respective management hierarchy. By so doing, you in essence add a moral compass to the process that makes honesty and accountability a natural part of the process.

9. Point, Aim, Fire vs Ready, Fire, Aim

Part of not rushing things is proper planning. Allow for ample time to go through the entire purchasing process. Cutting the time short leads to rushing the project to completion which leads to problems and errors.  Be sure to think before you act. Cliché, but sage advice. Consider potential problems and delays and what impact they may have. What can you do to ensure the project is completed on time? Work the scenarios through and develop contingencies. 

10. Personal Development and Experience

Each time you follow this process be sure to learn and develop yourself. Take pride in a job well done, but don’t be content that you have achieved perfection. What worked and what didn’t? What areas could be improved? What could be utilized in other areas? Don’t be afraid to try something new. Each time make changes and see if something works better. Always work on improving yourself and the process.

August 15, 2013
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BY Bellwether
A Successful Procurement Process Guide, Part 1

Procurement is about getting the product or goods you need as quick as possible for the least cost right? With this mindset there are some that rush through the process, cutting corners and doing whatever it takes to get the best deal, fast. Before your next major item or service is procured, consider these tips for a successful procurement process.

1. Don’t Be In a Hurry!

Take your time and start the process with all the information you need. Consider what needs to be done, who needs to do what aspect(s), and what role to external parties play. Lay out your timeline with advice from the departments involved with investigative periods, approval processes, delivery time, and evaluation of product after it arrives.

2. That’s Your Job!

Who will be involved in the procurement process and what will their job be? For large businesses these roles are solidified in job descriptions, but be sure everyone knows who is responsible for what. For small to medium businesses it’s more common to have people wearing multiple hats so be sure to designate who is responsible which part of the process.

3. Be Open and Transparent

Don’t fall into the trap of playing favorites. Make sure the process is fully open and transparent so that suppliers are unable to influence decision makers and decision makers don’t do under the table side deals. This can be a grey area, where some extra game tickets are gifted as a way to say thanks, but when you cross that ethical line where the contracts are awarded based on the perks promised you risk problems internally and possibly legally as well. So play it safe and be transparent to help deter inappropriate favoritism.

4. Cross Your T’s and Dot your I’s

With every step of the process be sure you are following all the rules. There may be multiple layers and complex issues involved. It’s not simply a matter of following company rules, but also ensuring compliance with the laws of your industry, local government, and state and federal as well.

5. Leave Room for Innovation

Do not be so precise and restrictive in your approach to all the details. When working with your supplier look at the end result of what you want to achieve, the desired outcome, and then step back to let them have some creative liberties. Let them bring their expertise to the table and provide exceptional value. The best solution may be one you haven’t considered. Rigidity has its place, but in the procurement process be sure there is room to innovate and deliver value.

August 13, 2013
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BY Bellwether
A Level Playing Field in Procurement Contracts

Contracts make up a big part of our personal and professional life with everything from getting utility services in your home, mobile phone service to multi-billion dollar business deals for company acquisitions. Somewhere in between is where most purchasing managers find themselves. The dollar amount for most contracts is not in the billions of dollars so does that mean we shouldn’t concern ourselves with the little contracts… don’t sweat the small stuff? Actually, all purchasing managers should be very aware of the contract process and heavily involved to ensure their company is protected while at the same time not trying to tilt the scale too heavily in their own favor. Every contract should have two winners.

There are 3 basic elements to every contract including those you deal with as a purchasing manager.

  1. The Offer is what starts the process. It can be written or verbal and is simply what is offered to another party in exchange for something else. This typically involves a monetary exchange, but can involve exchanging goods or services as well.
  2. The Acceptance is what creates the contract. If one party tries to modify the terms or make changes to the initial offer, then it becomes a counter-offer. There is no contract until one party accepts the offer or counter-offer.
  3. Consideration is what is promised in exchange for something else. This is often money, but could also be goods or services, another benefit or anything that both parties agree to. It could be a promise to pay X dollars when goods are delivered. It could be a promise in exchange for a service.

As a buyer or purchasing manager seeking services or goods from a supplier, you do not typically want to use their contracts. Using their contracts can you put you at a disadvantage. As a supplier, they do this every single day and are very good at optimizing their profit. They may even have a team of lawyers ensuring their best interest is held in priority with the crafting of every contract. Their lawyers will not have your best interest in mind. Level the playing field by writing your own contracts to provide to the supplier. Be sure to make it balanced and fair to both parties or they will build extra funding into the purchase price to compensate for excessive aspects that favor only you. So use your own lawyers to protect your interest, but don’t go overboard and skew things in your direction or you will pay the price. It may also be a good idea, depending on the complexity of the contract, to include a guide that outlines the key points that are most important to help manage the deal over an extended period of time. It won’t replace the contract, but give everyone a condensed version to view and stay on track. Following these suggestions will help ensure everyone wins.

August 8, 2013
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BY Bellwether
When Procurement Works and When It Doesn’t

When procurement doesn’t work you face problems of all sizes. Minor problems can be fixed quickly for little or no cost and others take up tremendous resources of both time and money to repair. Problems occur for a number of reasons including poor strategic planning, dated technology, or even the absence of technology.  Even it today’s hi-tech world there are thousands of small businesses that still utilize a paper-based procurement system, copied requisition forms, and Excel tracking.

Just to drive the point home of the potential devastation of a failed procurement process, let’s look across the ocean to our British friends.  According to news reported by Supply Management the Department for Transport discovered “significant technical flaws” in the bidding and procurement process for the West Coast Main Line railway franchise while being sued. The end result of the investigations was that three officials for the government were suspended and the total cost to British taxpayers could reach to the US equivalent of over $61 million!

Originally developed in cooperation with the Bill & Melinda Gates Foundation, Accenture Development Partnerships, Yale University’s Global Health Leadership Institute (GHLI), and government partners like MSD, Coca-Cola joined the partnership of “Project Last Mile”. This partnership has helped deliver life-saving drugs to nearly 20 million people since 2010 through a more efficient supply chain by using Coca-Cola’s proven logistics models. Patients in three African nations will now receive AIDS, tuberculosis and malaria medicine following the success of a pilot project in Tanzania.  The best of both worlds – government and private enterprise – working together for humanity. It doesn’t get much better than that.

These are two extreme examples. Your mistakes aren’t likely to result in millions of dollars in damages and your reach won’t be that of a global fortune 100 company. But our hope is that you can learn from these two examples about the impact your business can have when it has procurement systems in place and running smoothly.  If your procurement system isn’t up to date, can use some additions or is simply far below where it needs to be, let’s discuss where we can help. Meanwhile, check out this b-roll video from Coca-Cola . It really brings to life the impact and far-reaching effects of “Project Last Mile.” 

August 6, 2013
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BY Bellwether
MRO Expenses Can Be Frustrating and Painful for Small Businesses

Maintenance, repair, and operations (MRO) expenses plague companies of all sizes. These expenses are often left uncontrolled and can be especially frustrating and painful for CEO’s, CFO’s, and purchasing managers. These mundane items contribute as much as 70% of a company’s spend, but half the time they are never available when needed. What happens is that MRO parts become spot buys resulting in costly transactions that blow budgets instead of planned expenses that are already accounted for. According to research by Aberdeen Group, the paper burden accounts for about 20% or $200,000 per $1 million in spend

Imagine going to a big retailers and finding that 50% of their shelves are empty so half the items you were looking for are not available. Consider that 20% of the items have no markup built into them. How could they possibly survive? Yet that is exactly what your business does when it makes these sporadic MRO purchases because half the items are not available for the supply closet or warehouse.

Financial success for the business cannot be tied to production or sales goals alone.  You must carefully consider every expense. MRO decisions have a direct impact on profit margins for various departments individually and for the business as a whole.  Creating new, unplanned, purchase order cycles for MRO expenses time after time can significantly impact your bottom line.  Limited resources, lack of understanding, and simply a failure to plan an appropriate strategy all contribute to the troubles in this area.

Do any of the following sound familiar:

“It’s no secret that MRO is a disaster, but it is a low priority and I simply don’t have time.”

“MRO is only 6% of our spend, so what’s the big deal?”

 “The boss is unwilling to invest in MRO improvement so if they don’t care I don’t care.”

“MRO is not my problem; let ________ worry about it.”

Consolidating inventory and utilizing a cloud-based purchase order system to monitor and implement a planned strategy can go a long way in bring this uncontrolled area into alignment with your business goals.  All the departments must work together, in unity toward this common goal. Keep in mind that this is not management’s problem. Everyone has a role to play. Be sure to focus on needs ,not wants when creating your strategy. Wanting the latest and greatest gadget simply because it’s new or cool won’t help matters. Stay objective, stick to the facts, and demonstrate how this applies to the company as  a whole. The benefits of this approach can include greater efficiency, improved performance, increased supplier involvement and better control.

August 1, 2013
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BY Bellwether

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