Every organisation in the world wants a positive reputation in the market. This is equally true for governments and private businesses. To this end, organisations in most of the developed countries are spending substantial amounts on risk management and compliance solutions.

Almost every organisation has procurement officers. They are a vital element in smooth running of the business. Procurement is and always was the most “fraud-prone” business process. In simple terms a fraud is an advantage gained dishonestly.

In recent decades, procurement fraud has been rising. Several cases are being reported on a daily basis in Pakistan alone. Wherever buying and selling is going on, there is always a possibility of fraud, corruption, financial embezzlement, bribery and kickbacks. This is particularly true with organisations having inadequate compliance procedures.

Procurement, by definition involves another person/organisation. It is, as such, a determinant of the organisation’s reputation. Any wrongdoing in the course of procurement, real or perceived, can therefore damage organisational reputation besides the financial loss

If we take a look at the performance of the National Accountability Bureau (NAB), there have been news about corruption and embezzlement almost every day. While most of the reported cases come from the government sector organisations, the private sector is not exempt from it.

There are many reasons behind financial or procurement frauds, including the ever growing individual greed but the frequently ignored reasons include unreasonably low wages and lack of encouragement of employees. The most important factors are weak legislation and inadequate compliance policies.

Procurement fraud can take various forms. These include getting direct financial benefits from vendors and third parties; getting kickbacks in the shape of gifts; or support in some personal matters. The most common form is expensive gifts and direct financial benefits.

Procurement fraud can affect the organisation in many ways. These include harm to company’s reputation; damage from vendors and market; exposure of more employees to fraudsters; and direct financial loss resulting from approval for non-competitive rates on account of a false competitor analysis.

When a fraudulent procurement occurs in a government department, the money lost belongs to the taxpayers. The Pakistan Penal Code therefore makes the offer, payment or acceptance of a bribe punishable. Companies involved in such practices can be held liable under the Prevention of Corruption Act and the National Accountability Ordinance. Facilitation payments and gifts too are prohibited but are known to be common practice.

Procurement fraud is not a disease without a remedy. However, if it is ignored it can grow chronic, aggravate and undermine the whole set-up. There are many ways to control the problem. One of the most effective solutions is to conduct a background check while hiring employees, especially for decision-making positions. A background check enables organisations to make an informed decision to avoid hiring the wrong person for the job.

According to Zafar Iqbal Anjum, CEO of Corporate Research and Investigation Group, international corruption continues to undermine the progress of developing nations as rogue politicians, civic leaders and corporate representatives bypass the competitive processes provided in the rules.

The world is taking notice of corrupt practices and increasingly punishing the organisations found involved in those. From damaged corporate reputations that lead to brand and stock devaluation to negative investor perceptions, legal action and even jail terms for corporate directors, the high cost of corruption can have a lasting effect on even the most diligent organisations.

Companies worldwide can fall a victim to bribery and corrupt practices. In particular, organisations having multi-national operations and employing vast networks of third-party agents, suppliers, distributors and consultants, are vulnerable to the temptation. Navigating the complex web of multi-jurisdiction laws and regulations around the world related to anti-bribery and anti-corruption practices can be daunting. But now there’s an all-encompassing solution for building strong global compliance frameworks and safeguarding one’s organisation from third-party risks, says Zafar.

Maintaining a healthy working environment for one’s employees can also help avoiding financial frauds. Fawad Chaudhary, the HR Bank CEO, says that typically there are several factors that affect the employees’ moral choices. Receiving kickbacks, commissions and bribes is common in Third World countries that make corporate corruption a ‘norm.’ Having a well defined system of evaluations in an organisation can avoid such instances. Favouritism and nepotism are rife when employees are not rewarded fairly for their contribution, he says.

In many cases, vendors are corrupt and have a history of bribery, kickbacks, financial embezzlements and poor services. Typically, such vendors (in connivance with procurement officers) quote low rates and promise high quality supplies to get the orders. When it comes to delivery they provide low-quality products/services. Due diligence is the best solution to avoid a handshake with such vendors/suppliers. It is by conducting due diligence with regard to third parties, that organisations can learn about past business dealings and performance of vendors. Once that information is available, the decision making is simple.

The Corruption Index of World Economic Forum which is being used for the annual Corruption Perception Index measured by the Transparency International says that Pakistan’s ranking has slipped from 117 to 120. The ranking apparently dropped on account of registration of more corruption related cases.

To be effective, an anti-corruption campaign has to be across-the-board and regardless of political affiliations. While commenting on the situation, Amir Jahangir, CEO of Mishal, a partner institute of World Economic Forum in Pakistan stated that Pakistan could improve on the corruption perception index if the collective consciousness of the society is evolved against corruption. This can be achieved by engaging the masses in identifying corruption as an evil that hinders social growth, progress and prosperity.

While commenting on the conflict of interest as a key element behind growing corruption at government level, Amir Jahangir says that National Conflict of Interest Bill of 2016 is a good tool to ensure transparency. The bill needs to be enacted to create a framework to check conflict of interest. In the absence of such a framework, there will always be influential people who get away with less than transparent deals.

About plea bargains, Amir Jahangir says a certain period of imprisonment should be part of the arrangement.

According NAB’s official annual report for 2019, an amount of Rs 14.149 million was recovered through voluntary return, Rs 3,827.753 million through plea bargain and Rs 11,681.359 million in the form of properties surrendered by the accused persons. Thus, the total ‘direct’ recoveries came to Rs 15,523.261 million. It says another Rs 121,895.619 million was recovered indirectly with the efforts of the Bureau. As a nation, we need to be more vigilant to point out the corrupt people around us and stand against all kinds of corrupt practices.

The writer is a freelance journalist. He writes about socio-economic issues in Pakistan. He can be reached at abid.saeed109@gmail.com