**London**: Procurement fraud has surged, affecting organisations worldwide. Experts stress the urgent need for a proactive approach, leveraging AI and automation to combat this issue. With middle-market firms particularly vulnerable, a shift in mindset is essential to safeguard finances and reputations.
Procurement fraud has escalated into a significant concern for organisations globally, shifting from a background issue to a pressing challenge that demands attention at the highest levels of management. This transformation has been influenced by advanced digital tactics and growing vulnerabilities amplified by geopolitical and economic instabilities. Michael van Keulen, the industry principal for procurement at Coupa, highlighted the necessity for a change in perspective regarding fraud prevention. “We have to change our mindset,” he stated in an interview with PYMNTS. “Fraud prevention isn’t just a finance problem or a procurement problem — it’s a business imperative.”
Recent data from a PMYNTS Intelligence report, developed in collaboration with Coupa, indicates that middle-market firms are particularly susceptible to procurement fraud, exacerbated by an environment of high uncertainty where cybersecurity risks and operational instability intersect. Almost 87% of these businesses report experiencing greater customer losses due to fraud compared to their more stable counterparts. Factors contributing to this exposure include fluctuating regulatory landscapes, volatile markets, and outdated procurement processes.
Fraudulent activities within procurement can encompass a range of unethical practices, from duplicate invoices to overpayments and unauthorised transactions. Van Keulen pointed out the severe financial consequences that can arise from inadequate procurement practices, stating, “We’ve seen companies defrauded for tens and sometimes hundreds of millions of dollars simply because they didn’t have the right institutionalization of their procurement practices.”
Traditionally, organisations have taken a reactive approach to fraud, only addressing it after incidences have occurred. However, van Keulen emphasises the benefits of a preventative mindset, advocating for the integration of AI and machine learning technologies that can detect potential fraudulent behaviours before they escalate. As he noted, “Preventing fraud is a much better way. With AI and machine learning, you can detect fraudulent behaviours before they escalate, using real-time alerts and large data sets to pinpoint anomalies before payments go out the door.”
Despite the evident advantages of automation in fraud detection, adoption rates remain low, with only 28% of firms integrating automated systems, although 71% acknowledge its efficacy. Van Keulen attributes this hesitance to misconceptions surrounding fraud detection methods. He clarified, “There’s no one-size-fits-all solution,” explaining that effectiveness varies across industries. Moreover, he added, “Fraud detection is only as good as the data feeding into it.”
Automation not only curtails fraud but also enhances operational efficiency in contrast to traditional methods. Coupa has developed an AI-driven tool named Spend Guard, designed to identify potential fraudulent activities in real time. Van Keulen explained the operational shift brought about by Spend Guard: “It shifts organizations from a manual, reactive approach to an automated, proactive one.”
The implications of procurement fraud extend beyond mere financial loss, influencing reputational damage and shareholder value. Van Keulen commented on the often underestimated impact of such fraud, remarking, “Executives often underestimate the impact of procurement fraud because it’s hard to quantify — until it happens.” He emphasised the importance of dismantling operational silos and adopting AI-driven solutions to mitigate risks associated with procurement fraud effectively.
In conclusion, as businesses face increasingly sophisticated procurement fraud threats, the call for the adoption of real-time detection and automation in procurement processes has never been more pronounced. The ongoing conversation surrounding procurement fraud highlights the need for organisations to leverage available technology to transform potential threats into manageable risks.
Source: Noah Wire Services
