**London**: With procurement fraud becoming a pressing issue globally, expert Michael van Keulen stresses the need for middle-market firms to adopt proactive strategies using AI and automation to detect and mitigate fraud before it escalates, ensuring financial and reputational protection.
Procurement fraud has emerged as a significant and growing concern for organisations worldwide, transitioning from a manageable issue within the back office to a matter of strategic importance at the boardroom level. This shift can be attributed to advancements in technology and an increase in external threats, particularly in light of geopolitical tensions and economic volatility.
Michael van Keulen, industry principal for procurement at Coupa, emphasised the need for a change in mindset regarding fraud prevention. “Fraud prevention isn’t just a finance problem or a procurement problem — it’s a business imperative,” he stated during an interview with PYMNTS. The evolving landscape of procurement fraud, currently faced by middle-market firms, reflects a concerning trend, with nearly 87% of these organisations experiencing greater customer losses due to fraudulent activities compared to their more stable counterparts.
A recent report by PYMNTS Intelligence, conducted in collaboration with Coupa, highlights that middle-market firms are particularly vulnerable to procurement fraud. This vulnerability stems from a combination of frequent regulatory changes, volatile markets, and outdated procurement processes, all of which contribute to an operating environment filled with uncertainty. Van Keulen noted, “If you have not operationalized your procurement process appropriately, [and] if you don’t have a certain level of maturity, you’re receptive to fraud.”
The spectrum of procurement fraud is extensive, encompassing issues such as overpayments, duplicate invoices, and unauthorised transactions. Van Keulen remarked that corporations can be defrauded of “tens and sometimes hundreds of millions of dollars simply because they didn’t have the right institutionalization of their procurement practices.” Traditionally, firms have approached fraud in a reactive manner, addressing issues post-incident. However, van Keulen advocates for a proactive strategy that leverages artificial intelligence (AI) and machine learning to detect fraudulent activities before they escalate, asserting, “Preventing fraud is a much better way.”
Firms that integrate automation into their procurement processes are statistically better positioned to mitigate fraudulent activities, with data suggesting that those employing automated solutions are twice as likely to reduce fraud compared to organisations that stick to manual methods, which often rely on human oversight. Van Keulen articulated the inherent limitations of manual fraud detection, stating, “Humans inherently introduce bias and inefficiencies.” In contrast, automation constantly scans large data sets, identifying anomalies in real-time.
He further noted the scale at which AI can operate, mentioning that Coupa’s community encompasses $7 trillion worth of spending, which serves as a database for training AI to expedite and enhance anomaly detection. Despite the clear advantages of automation, the adoption of such technologies remains low, with only 28% of firms having integrated automated fraud detection into their systems. A substantial 71% of these firms acknowledged it as the most impactful solution, indicating a significant gap in implementation.
Addressing the barriers to automation adoption, van Keulen pointed out a common misunderstanding about how effective fraud detection functions: “There’s no one-size-fits-all solution. What works in one industry won’t necessarily work in another,” he explained. He further emphasised that the effectiveness of fraud detection systems is directly correlated with the quality of data being utilised.
Coupa has developed a tool known as Spend Guard, which aims to transition organisations from a reactive to a proactive stance in managing procurement activities. “Spend Guard shifts organizations from a manual, reactive approach to an automated, proactive one,” van Keulen elaborated, adding that it employs AI and machine learning to analyse spend data and identify potential fraud in real-time.
For middle-market firms grappling with increasing fraud risks, the pathway to minimising these threats involves leveraging AI for enhanced pattern recognition and integrating automated systems across their procurement lifecycle. Van Keulen cautioned that the impact of procurement fraud is often underestimated until it manifests, which can lead to significant financial and reputational damage: “When it does, it’s not just about financial loss; it’s about reputational damage and shareholder value.”
As procurement fraud continues to pose risks to business stability, van Keulen’s insights underscore the importance of adopting real-time fraud detection and investing in AI-driven solutions. He concluded that while the necessary technology exists to tackle procurement fraud effectively, the onus is on organisations to implement these innovations.
Source: Noah Wire Services
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