Purchasing Professionals

Ethics and Fraud

Horizon Associates frequently helps organisations to formulate and install practical ethical policies in order to both protect the individual from accusations of being “on the take" and the business from fraud.

 

Everyone involved in buying and selling knows how competitive securing an order from a supplier can be – it can be cut-throat! The temptation for the seller to offer additional inducements to the buyer can be immense. But if the buyer accepts such gifts, they are effectively giving away some of the profit which could have gone into their company’s operating margins. Buyers invariably claim that the acceptance of inducements does not influence their choice of supplier in the slightest. This is clearly nonsense.

 

Inducements also cost the supplier in the form of reduced profit. They are offered in order to beat the competition by unfairly distorting, influencing or eroding the impartiality of the buyer’s decision making process.

Inducements = unfair influence = bribery = purchasing fraud.

Organisations employing staff to buy on their behalf can protect themselves by introducing an ethical code. A draft code of ethics is listed below that can of course be modified to suit your circumstances.

 

Staff shall never use their authority for personal gain and shall seek to uphold the standing and reputation of the Company by:

  1. Maintaining un-impeachable integrity standard in all their business relationships both inside and outside the Company.

  2. Optimising the use of resources for which they are responsible to provide the maximum benefit to the Company.

  3. Complying both with the letter and the spirit of the law of the UK and the EEC; such guidance on professional practice as may be issued by Management from to time and Company contractual obligations

Here is a range of Ethical Guidelines:

Declaration of Interest.

Any personal interest which may impinge or might reasonably be deemed by others to impinge on impartiality in any matter relevant to his or her duties must be declared (e.g. Share ownership or buying from relations). A buyer should not have any personal interest in any supplier with whom business is being conducted.

Confidentiality and Accuracy of Information.

The confidentiality of information received in the course of work should be respected and should never be used for personal gain. Information given in the course of work should be true and fair and never designed to mislead.

Competition.

While bearing in mind the advantage to the Company of maintaining continuing relationships with some suppliers, any arrangements that might in the long term prevent operation of fair competition should be avoided.

Business Gifts.

Only items of very small intrinsic value such as business diaries or calendars should be accepted.

Hospitality.

There are occasions when the networking opportunities can be an advantage.  However business entertainment must always be pre approved by line management and only accepted if the buyer's Company is prepared to reciprocate to the same value.

Business Dining.

The word "business" is key. The informal atmosphere of dining meetings can sometimes be beneficial. Dining should never be purely social and should be kept to modest proportions. In order that the buyer should never be in a position of feeling beholden to the Supplier, the Company must also be prepared to fund the buyer to reciprocate equally.

Supplier visits.

Business trips to visit the supply sources or manufacturing units are often a vital part of the supplier selection process. However to emphasise the business nature of the trip the buyer should not allow the seller to pay travel or subsistence costs.

Approval and Records

Approval should always be sought from line management accepting invitations to dine out, hospitality or supplier visits. Records of approved invitations accepted by staff should be maintained by line management, and be part of the internal audit process.

Example:

Wal-Mart, possibly the most successful retailer in the world, has a corporate culture that includes flying economy, sharing hotel rooms and NOT accepting even a can of Coke from a supplier. Sam Walton the founder of Wal-Mart said, "The customer gets no benefit out of the buyer having a nice bottle of wine at dinner. In many ways it is the customer that is subsidising the entertainment, the trip to the US Open or the Super Bowl or the cruise. Whatever it is, the customer is paying for it."