Where Did All Of Our Money Go?
What is the value of a
tightly managed procurement process? Why should a company have invoice review
and payment procedures that separate ordering authority from payment approval
responsibility? Why should managers insist that everyone – including senior
managers- follow approved procurement processes and not set precedents for
bypassing processes? Why should convoluted transactions and procurement
anomalies automatically raise audit flags? What can happen when a company loses
control of how money is spent?
In a recent lawsuit, a
Microsoft manager is accused of misappropriating hundreds of thousands of
dollars by manipulating procurement and invoice payment processes. Whether he is
actually guilty or not, is not the issue. The important thing for us to
understand is that the alleged scheme is plausible, and could be factual. It’s
not surprising given Microsoft’s huge volume of subcontractors and subcontracted
work. But look closer at what investigators say occurred, and it become obvious
that it could happen anywhere, even in small companies.
Even in the smallest
company, bypassing reasonable expenditure controls can allow valuable company
assets to just trickle away. In this case some of the red flags are obvious:
- Bypassing a normal
procurement process to make payments
- Mangers negotiating side
agreements directly with contractors
- Submitting one
contractor’s invoice to another contractor for payment
- One person making the
agreement and also approving the payment
- Failure of internal
controls to highlight questionable payments
Whether for nefarious
purposes, or just plain waste, money lost hurts and could scuttle the business.
What can companies do to avoid this pitfall? Establish clear procurement
processes based on sound accounting controls and principles. Then question
anything that doesn’t fit.
Here is one previous
presentation which discusses procurement fraud:
Here is a
Google search for other related articles on my web site.