Key Stages in Business Continuity Planning - Essay Example

Procurement Fraud Name Class Unit Table of Contents Table of Contents 2 INTRODUCTION 2 DIFFERENT TYPES OF SUPPLY CHAIN FRAUDS  3 Collusion between suppliers 3 Bid rigging 4 Unjustified single source awards 4 PREVENTATIVE MEASURES TO ADDRESS FRAUD IN SUPPLY CHAINS.  5 Increasing the list of bidders 5 Training personnel in fraud 5 KEY STAGES IN BUSINESS CONTINUITY PLANNING (BCP) IN THE CONTEXT OF RISK MANAGEMENT 6 Stage 1: Programme management 6 Step 2: Risk and business impact analysis 6 Stage 3: Identify response options 7 Step 4: Develop response plan 7 Step 5: Training, Exercising and Maintaining 7 RISK ASSESSMENT TOOLS/TECHNIQUES USED REDUCE THE RISK OF SUPPLY CHAIN FRAUD.  8 Identifying possible frauds risks 8 Carrying Audit 8 Use of Technology Solutions such as ERP 9 CONCLUSION/SUMMARY 10 REFERENCES 11 INTRODUCTION Fraud is one of the most common issues affecting organisations worldwide. The annual Kroll Fraud report identifies a rising trend of the number of firms being hit by fraud. Procurement fraud is one of the most common frauds which occur in one in every five organisations according to 2012 report. The report states that a third of the frauds hitting the organisations are based on the suppliers’ wrongdoing. Fraud is a very complex matter to investigate due to fact that it can be committed in a lot of ways. Most of the firms obtain their goods through procurement in their supply chains. In most cases, fraud is embedded in the contract making it hard to spot it. Organisations are thus supposed to be ready to combat fraud when it arises (Farrington & Lysons, 2006). Fraud is propagated through culture of greed, reluctance and unethical behaviours. It is vital to know that fraud can be committed at any point in the supply chain from procurement to distribution (Katz, 2012). This research report analysis supply chain fraud through looking at three types of supply chain frauds and preventive measures, key stages in Business Continuity Planning (BCP) in risk management context and proposes three risk assessment tools that can be used in reduction of supply chain fraud. DIFFERENT TYPES OF SUPPLY CHAIN FRAUDS  Collusion between suppliers Collusion occurs when the suppliers act like a cartel and share contracts among themselves. This is through sharing of bid information. This form of fraud may also force other suppliers who are not part of the cartel to give up their bids through pressure and corruption (Katz, 2012). Collusion among suppliers exposes the company to suppliers who may offer low quality products and high prices. Potential bidders may also fail to submit their bids due to pressure exerted on them by the cartel. There have been cases where suppliers share bids in a rotational basis. This type of fraud leads to the firm losing a lot of revenue. Historical pricing have been used as the bench mark for the future work. If the initial price was set high due to fraud, the prices will always be high. This form of fraud is seen through bid suppression, cover bidding, bid rotation and market division. Collusion between suppliers is very complex and costly to the organisation (Wells, 2007). Bid rigging This is form of supply fraud which involves unfair tendering process. This is seen where there are many suppliers who have the capability to perform but are denied a fair bid or are not included in the process. This has been seen in tendering documents which eliminates potential bidders through unrealistic requirements (Katz, 2012). For example, a tender document may ask for unrealistic experience in a certain field hence eliminating most of the capable bidders. Some of the supply bids are written with a certain contactor in mind. Bid rigging also involves processes where companies are prequalified (Schlegel & Trent, 2015). Bid rigging leads to elimination of potential contractors and in most cases results in poor work and overpricing. Unjustified single source awards These forms of fraud occur when the work is awarded without a tender or any form of price check (Chopra & Meindl, 2003). This is very common in the private sector since they do not have to show high level of transparency as in the public sector. The quote given by single source awards frauds does not represent the value for money leading to loss of revenue to the organisation. This is due to fact that there is no any form of price checking carried out to determine whether the quote is fair (Schlegel & Trent, 2015). Use of single sourcing has been a major avenue of fraud in the private sector supply chains. PREVENTATIVE MEASURES TO ADDRESS FRAUD IN SUPPLY CHAINS.  Fraud in the supply chain cannot be easily fully eliminated but through use of right approach, it can be greatly reduced (Kochan & Goodyear, 2011). Two main ways to address fraud in supply chains are; increasing the number of bidders and training personnel. Increasing the list of bidders The procurement officials should ensure that the list of bidders is expanded to make it hard for them to collude (Katz, 2012). It is very vital for buyers to have as many bidders as possible. Collusion of bidders arises when there are less than five competitors in most cases. Bidders should sign an affidavit which shows that they have not colluded and the penalties they will incur for colluding (Schlegel & Trent, 2015). The organisation is supposed to be well versed with the market dynamics as they can help them suspect collusion. Training personnel in fraud Organisation should train its personnel in the procurement division to understand risks in supply chain frauds (Katz, 2012). This should ensure that the personnel are able to detect any type of procurement frauds before they occur. The procurement staff should be aware of their responsibilities and obligations in fair processes in supply chains (Schlegel & Trent, 2015). The organisation should carry out regular training and awareness sessions for the employees on fraud and its consequences. KEY STAGES IN BUSINESS CONTINUITY PLANNING (BCP) IN THE CONTEXT OF RISK MANAGEMENT It is very vital for the firm to practise risk management and have a continuity plan which can help them recover and respond to occurrence of business disruption. Business Continuity Planning (BCP) ensures that the firm is able to resume to its normal business activities after a major disruption such as fraud (Elliott, Swartz & Herbane, 2010). Stage 1: Programme management This stage involves gaining support from the executive and having resources being committed to come up with and maintain the BCP programme. BCP is a vital part of the organisation ability to manage risk. It forms part of the organisation risk management programme. This stage involves the organisation endorsement of risk mitigation strategies which involves BCP (Elliott, Swartz & Herbane, 2010). Step 2: Risk and business impact analysis This stage involves organisation prioritising their business activities based on their importance. It also involves identification of resources which are needed to ensure vital business activities are supported for continuity purposes. The stage involves being able to identify ways in which the business can be affected if the critical activities are interrupted. At this stage, timeframes for resuming business activities after outage are determined. The resource requirements for the continuity of the firm are identified (Elliott, Swartz & Herbane, 2010). Stage 3: Identify response options This step involves looking for the response options that are needed for business continuity. The options are identified and accessed. The identified and recommended options are budgeted and implementation plans drawn. The recommended options are then handed to the executive for the approval together with their budgets and proposed implementation plan (Elliott, Swartz & Herbane, 2010). Step 4: Develop response plan This stage occurs after the response plan has been approved by the executive. The managers and employees are organised to form a crisis management and business continuity team. The plan comes up with an incident notification plan business continuity is documented. During this stage, an organisation is able to come up with procurement of the backup equipment needed. The firm starts commissioning alternative sites needed to curb disruptions (Elliott, Swartz & Herbane, 2010). Step 5: Training, Exercising and Maintaining This is the stage where the plan developed is analysed to ensure that organisation is capable of delivering critical activities in case of a crisis such as fraud. Employees are trained on the way to use BCP. Exercises are conducted to ensure that the developed plan is accurate and on schedule. Business continuity management is an integral part of organisation risk management (Elliott, Swartz & Herbane, 2010). Business Continuity Management (BCM) Step 1 Step 2 Step 3 Step 4 Step 5 Programme Management Risk and Business Impact Analysis Identify Response Options Develop Response Plan Train, Exercise and Maintain Fig. 1, Business Continuity Management RISK ASSESSMENT TOOLS/TECHNIQUES USED REDUCE THE RISK OF SUPPLY CHAIN FRAUD.  Identifying possible frauds risks The organisation is supposed to have a top down approach in risk assessment through listing areas where fraud is more likely to occur in the supply chain (Jolly, 2003). The risks are supposed to be looked at in the way they affect shareholders value. The organisation is then supposed to come up with fraud risk profiles. The risk assessment should be done with the involvement of the stakeholders and all decision makers in the organisation. The process is a joint effort and leads to a solid approach to combat fraud risks (Katz, 2012). The organisation is supposed to communicate to everyone on their policies on fraud. Everyone in the organisation is supposed to be aware that the organisation has put in place measures to detect fraud and all their transactions are monitored (Doyle et al., 2005). Through use of fraud signals, an organisation can be able to mitigate fraud. These includes, unusual payment patterns, complaints, tips, high number of purchase orders, high defective returns and increase in number of returns. Carrying Audit Carrying out audits regularly is a technique that can help in reducing fraud in the supply chain. The organisation is supposed to take stock of their supply chain. The process starts with coming up with a supply chain map which shows the flow of goods in the entire supply chain (Sadgrove, 2005). The system identifies all financial, physical and information flow in the entire supply chain. Once the organisation has mapped their supply chain, they have to examine all processes and identify any weakness and risks. All parties who are involved in the supply chain should be well known and trusted. The organisation should examine that quality assurance is done in supplier selection and order placement. All financial transactions should be verified and also means used for transfers. After carrying out the audit, the organisation is supposed to look for areas of weakness and improve them (Hendricks & Singhal, 2003). The organisation has to ensure that rules and processes are followed in the supply chain to ensure instances of fraud are eliminated. Use of Technology Solutions such as ERP Risk management is well carried out through use of technology. Availability of technology and accurate data can help in reducing risk of supply chain fraud (Levičar & Lisec, 2012). Organisations have been using technology to analyse huge data and eliminate errors and variations that may be caused by human beings. Enterprise Resource Planning (ERP) has been widely used to help in monitoring any fraud activity within the organisation. Organisations have been taking advantage of the technological solutions such as ERP to strengthen their checks and balances in order to eliminate fraud. Detecting fraud early in an organisation helps the organisation in preventing escalation. Technology helps in ensuring that fraud scenarios do not go undetected (Levičar & Lisec, 2012). Technology can help in identifying any unusual transaction in the supply chain hence increasing detection chances of fraud. CONCLUSION/SUMMARY Procurement fraud is one of the most common issues affecting supply chains. It has been proved that a third of the frauds experienced in the organisations are based on the suppliers’ wrongdoing. Supply chain fraud involves collusion among suppliers, bid rigging and unjustified single source awards. The suppliers can collude to act like a cartel and take bids in a rotational basis while eliminating other members who are not in the cartel. Bid rigging occurs where the tendering process is unfair and potential suppliers are eliminated unjustifiably in favour of preselected bid. Unjustified single source awards are a form of fraud where no tendering process or price check is carried out. Two ways to address fraud in supply chains are increasing the number of bidders and training organisation personnel on fraud. Fraud has been increasingly leading to business disruptions. Business Continuity Planning (BCP) ensures that the firm is able to resume to its normal business activities after a major disruption such as fraud have occurred. The main steps for BCP are; Programme management, Risk and business impact analysis, Identify response options, Develop response plan, training, exercising and maintaining. Early risk assessment can help organisations a lot in eliminating fraud. This can be done through; identifying possible frauds risks, carrying out audit and using technology solutions such as ERP. Through these tools and processes, it is possible to minimise fraud in the supply chains. REFERENCES Chopra, S., & Meindl, P., 2003, Supply Chain Management: Strategy, Planning and Operations, Prentice Hall. Doyle, F. F., Graunke, C. L., Hildebrandt, D. J., Otto, R. K., & St, G. M. C., 2005, “Act with ethics. Sarbanes-Oxley's role in helping to ensure supply chain integrity”. Materials Management in Health Care, Vol.14, no.7, pp.35-40. Elliott, D., Swartz, E., & Herbane, B., 2010, Business Continuity Management: A Crisis Management Approach, New York: Routledge. Farrington, B., & Lysons, K., 2006, Purchasing and Supply Chain Management. Pearson Education UK. Hendricks, K. B., & Singhal, V. R., 2003, “The effect of supply chain glitches on shareholder wealth”. Journal of Operation Management, Vol. 21, no.5, pp.501-523. Jolly, A. 2003. Managing business risk. London: Kogan Page. Katz, N., 2012, Detecting and Reducing Supply Chain Fraud. Farnham: Ashgate Publishing Ltd. Kochan, N., & Goodyear, R., 2011, Corruption: The New Corporate Challenge. Basingstoke: Palgrave Macmillan. Levičar, S., & Lisec, A., 2012, Fraud detection in the supply chain information systems. Xix International Scientific Symposium Transport Systems 2012, 26-27 April, 2012, Opatija, Croatia, 129-132. Sadgrove, K., 2005, The Complete Guide to Business Risk Management, 2nd ed., Gower Publishing Ltd. Schlegel, G. L., & Trent, R. J., 2015, Supply chain risk management: An emerging discipline. Boca Raton, Florida: CRC Press Wells, J. T., 2007, Fraud casebook: Lessons from the bad side of business. Hoboken, N.J: John Wiley & Sons. Read More