Some people may still question the value of a Procurement function. So, let’s have a look at what happened to an organisation that did not invest adequately in this area. An organisation which did not put in place robust, fair and transparent procurement processes. Age Concern was in the news for all the wrong reasons recently. “Head of Age Concern branch who stole £700,000 from charity jailed”, read a headline in the Independent.
So, how does someone get away with defrauding a charity for eight years before getting caught? How could good Procurement practices have prevented this? What has the “real cost” been to Age Concern of having ineffective controls in place?
How to defraud a charity
As the ex. Age Concern branch Head knows, all you need to do is write yourself some cheques, award yourself bonuses, top-up pension contributions and create some fake invoices.
The fake invoice part is, of course, relates directly to inadequate procurement processes. So does the self-payment via cheque. The disgraced branch Head outrageously claimed in court that, “he paid himself cheques to then pay local firms in cash for services provided” [1]. This highly shady operating practice accounted for the largest part of the £700,000 fraud. £433,236 worth of cheques to be exact.[2]
As if that weird supplier payment process wasn’t outrageous enough, the ex. branch Head also claimed that, “the bogus documents were simply ‘placeholders’ to assist with accounting when the originals were lost and were never intended to look real.”[2] WTF! Really!? I have never heard of that accounting practice before. And that’s a lot of originals to lose anyway…
How empowered Procurement processes could have made a difference
These are clearly despicable acts of fraud. They also raise the question, “Where was the Age Concern’s oversight, transparency, processes and accountability during those 8 years the fraud took place?” How can one person be given the ability to complete the entire procurement processes, start to end, on his own without adequate checks and balances in place? He supposedly made the buying decision, placed the order, receipted the goods and services and made the payments. That “process” (or rather, lack of process) invites fraud. If this particular individual hadn’t committed it, someone else would have sooner or later.
Proper procurement processes have separation of duties built in, as well as auditability and transparency. A process like that may not have deterred a very determined fraud-minded branch Head. However, he would have been caught a lot quicker and the damage would have been a lot less.
The real cost…
And the damage goes beyond the £700,000 loss. There is indeed a much higher price for Age Concern to pay. Though this incident was limited to the South Tyneside branch, it taints the entire Age Concern organisation. It’s the association with the Age Concern brand that people will remember. And what a perfect excuse for not donating. This kind of reputational damage is slow and expensive to repair.
This is particularly true in an environment of falling public trust in charities. A 2017 Lloyds Bank Foundation report mentioned this as a major issue. And according to Charity Awareness Monitor (nfpSynergy, July 2016) biggest barrier to giving is “too little money actually going to the cause”
This growing mistrust and call for transparency is also expressed in some of the public comments on the Daily Mail Online article reporting on the fraud entitled, Age Concern chief, 57, faces ‘significant’ jail time for pocketing £700,000 charity cash in eight-year fraud.
“Another Charity in the dock. Are any of them fit for purpose or just one huge rip off?”
“Let us have a table of the exact remuneration given to both senior staff and the workers employed or paid by each charity. In particular please show us the amount per donated pound that is actually used for the cause for which the donation was intended.”
“I’m running out of charities to give to – they all appear to have nothing to do with charity!”
“…Time for strict limits on charity salaries & independent auditors, which change every year. In the meantime, don’t give the con merchants anything.”
As evident from these comments, it’s not just Age Concern paying the price for this – all charities and their beneficiaries are.
Sources:
[1] Head of Age Concern branch who stole £700,000 from charity jailed, Independent, 25 May 2018.
[2] Age Concern chief, 57, faces ‘significant’ jail time for pocketing £700,000 charity cash in eight-year fraud, Daily Mail Online, 10 May 2018.
Armand Brevig is the Managing Director of Procurement Cube. We have created an effective and lean Procurement product that unlocks hidden business value for SMEs. It’s a Procurement Powerhouse inside your organisation that delivers Value for Money, Total Cost Control and Enhanced Competitiveness. The approach builds fit for purpose capabilities that deliver sustainable strategic value. The focus is on what really matters in your unique situation.
