Compliance benefits for the purchasing department
The concept of Compliance, already known in the corporate scenario, aims to adapt companies to legal and ethical rules that guarantee values such as transparency in business relations and procedures. It is also very effective to detect and treat possible frauds, deviations or non-conformities that may happen in the company.
But what about compliance in the purchasing department? What are its benefits? That is the subject of this article
Fraud in the purchasing sector
Among other responsibilities, it is up to the industry to judge the best proposals for the supply of materials, as well as to choose which suppliers will be hired.
By moving varying amounts of money, these negotiations can open up gaps for unofficial agreements – where the choice falls on the supplier that offers some kind of benefit. To investigate this scenario, Price Waterhouse Coopers (PWC) conducted a Global Survey on Economic Crimes – Brazil.
According to the study by the consulting and auditing services company, 44% of the companies that were victims of economic crimes in Brazil suffered fraud in the purchasing process. The survey also found that 69% of the victims detected fraud during the selection of the supplier, 63% in their hiring and 56% in the invitation to participate in bidding processes.
In addition, the survey pointed out the “opportunity” as the main factor to contribute to the criminal practice, since people who commit fraud usually know very well the existing regulations and know how to cheat them, which makes essential the existence of clear policies and training programs focused on ethics.
Continuing with the data, 64% of criminal attacks are committed by people who work in the company’s purchasing department. “When the fraudster is inside the company, his profile is balanced between middle management and team members, both slices with 39%. Members of the executive management account for only 17% of cases,” the survey found.
These data are ratified by Cláudio Marcelo Rodrigues Cordeiro, in his work “Internal and operational auditing: fundamentals, concepts and practical applications”, published in 2013. According to Cordeiro, fraud can occur when basic conditions such as intention, opportunity, insufficient internal control, weakness of an ethical policy associated with a weak code of conduct and risk inherent to the activity coexist.
Importance of Compliance in the Purchasing Department
The lack of compliance of the company’s performance both with the legislation and with its internal policies of good practices, regulations and codes of conduct may result in serious damages such as damage to the image of the company and its reputation in the market, compromise of the company’s results and, in more serious cases, criminal proceedings.
According to the author of the book “Compliance in Brazil: Consolidation and Perspectives (2008)”, Vanessa Alessi Manzi, four fundamental preventive and detective controls are required in a Compliance program:
- Establish a code of ethics for the organization;
- Develop professionals in the capacity to deal with ethical dilemmas;
- Create channels for identifying unethical conduct;
- Enabling the discussion of ethical dilemmas.
The author emphasizes that Compliance programs are not able to fully prevent illicit acts from occurring. However, risk management allows identifying, assessing, monitoring, recommending and reporting risks and combating them quickly.
Compliance in the purchasing department
Below are some practices that will help maintain compliance in the purchasing industry.
1- Creating a Compliance Program
The study by Price Waterhouse Coopers (PWC) pointed out that the most effective means of combating fraud is the prevention and mitigation of in-process risks and methods. In other words, the existence of a Compliance program in the purchasing department, establishing a code of conduct, training programs that involve ethical values and disseminate the established standards is essential. In addition to a channel for employees to report what they are seeing wrong, without having to identify themselves.
The main topics for creating a Compliance program in procurement are:
- Comply with existing laws, regulations and standards;
- Create a set of standards of conduct and ethical principles that are known to employees;
- Have clear and precise internal procedures and rules – to be obeyed by the entire team;
- Create reports that generate information and make the purchasing process transparent throughout the organization;
- Assist external and internal auditors offering all the items requested in an agile manner.
2- Frequent Audits
In addition to preventive controls and fraud detection, periodic audits are also a good tool within the Compliance culture in the purchasing department. These audits can:
- Avoid exchanging inappropriate favors or gifts between purchasing professionals and suppliers;
- Ensure proper control by preventing laws from being circumvented – even unconsciously;
- Verify that what is established in the contract is being duly fulfilled by the supplier;
- Observe if the business partners also follow compliance principles.
During the audit the entire acquisition process is evaluated. The user’s request (requirement, quantity and urgency), vendor selection, quotation, negotiation, order closing, physical receipt, storage. In addition to greater transparency, the audit allows improvement in the work of the sector.
3- Process standardization
This is a way to reduce loopholes for illicit acts that harm the company. Standardization will also allow the analysis of the strengths and weaknesses of the procurement process, identifying actions that lead to the continuous improvement of the Compliance process in the purchasing department – thus, the company will always be up to date with the changes that have occurred in the current legal norms.
The standardization of processes requires the structuring and documentation of activities in an archive that will be made available to the procurement team, who will be able to consult it in case they have any doubts or questions.
4- Partnership with suppliers who practice compliance
Make sure your suppliers meet specific ethical and transparency requirements and are qualified to maintain a business relationship with your organization. This verification process should be constant, also evaluating performance, and the supplier companies that prove more reliable should have priority in future negotiations.
This verification can be done with the monitoring of each of the suppliers in meetings, via social networks or verifying the mission and values of the company, for example.
The implementation of a Compliance program minimizes the possibility of illicit acts in the purchasing department and, in case of such occurrences, fights them more quickly.
In this process, good supplier management is essential. And the most practical way is to have a company specialized in spare parts.
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