“A potato buyer at the supermarket group Sainsbury’s has been arrested on suspicion of accepting bribes of up to 3 million pounds from a supplier. John Maylam, a senior buyer at the supermarket chain who has been with the company for more than 10 years, was arrested last week after police raided residential and business addresses in Cambridgeshire and Shropshire. It is understood that David Baxter, a main board director at the potato supplier Greenvale, has also been arrested. A spokesman for Greenvale said its parent company, Produce Investments, alerted Sainsbury’s after an internal investigation uncovered “payments made to individuals outside the group”. Greenvale supplies about 45% of Sainsbury’s potatoes and won the Queen’s Award for Innovation in 2006.”
The Guardian (UK, 17 March 2008)
The news report above confirms what we in Kenya know only too well: you can never be too comfortable about your procurement function.
Fishy happenings in the procurement departments of public bodies are not news. My father tells the story of a very promising young employee who was making great progress in his company some time ago. The young man showed up at work one day and handed in his resignation. My father was stunned. This man had a great future in the company – why was he quitting? Answer: to run for election as a councillor in his local ward. He would not be dissuaded; he had made up his mind.
A few months later the same young man showed up at my father’s factory, driving a very fancy new car. He had indeed been elected, and was clearly doing very well for himself. “But how did you become a rich man so quickly after election?” asked my father. You know the answer: he had joined the council’s tendering and procurement committee. I hate to think what example was set for the other employees of that company that day.
Procurement is a big red flag, from the smallest to the largest organisation, in both the public and private sectors. If even Sainsbury’s – one of the world’s leading supermarket chains – is not exempt from the danger then the rest of us have a great deal to be worried about. Not that we have any shortage of Kenyan examples: what was Ango-Leasing if not a procurement scam? What has been happening whenever government buys anything big, from roads to port equipment to office buildings?
Some CEOs have rules of thumb to handle the danger. Always put a woman in charge of procurement, not a man. Always rotate the position every two years. Always stay personally involved yourself. None of these is foolproof. Women can be just as larcenous as men; two years is a long time in purchasing; and some of the worst excesses in Kenyan corporate procurement history have involved the CEOs themselves, with purchasing managers just playing a supporting role.
However you run your company, danger will always lurk in the procurement function. That is not to disparage some of the very capable and very ethical men and women who are employed in procurement in Kenya. The problem is simply in the numbers. This area needs tight safeguards and many checks and balances. How much is too much? Your call. Just don’t sleep on it…
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{ 2 comments… read them below or add one }
The procurement function does provide opportunities for irresponsible managers and workers to enrich themselves at the company’s expense by colluding with dishonest suppliers and outright inflation of prices among others.
Despite sophisticated procurement approaches such as e-procurement and other business intergrated systems that improve on the control environment, nothing can substitute a man’s integrity especially where discretion behaviour is required.
Since procurement function is in charge of executing the organisation spend, measures should be put in place that limit any form of leakage due to moral hazards or opportunistic behaviour. Some of the measures could include:
- Improving the control environment by using technology that has good controls e.g SAP or other e-procurement tools. Its worth noting that technology is as good as the people using it, but it does give some consistency.
-Clear segragation of duties between the procurement and user departments. Users need to be involved in the purchase decision.
- Top managers should be great role models- this unfortuntaely is usually not the case and the rank and file perfect what they have learnt from their masters.
- Have a clear and transparent procurement policies and tendering process. Risk analysis and mitigation should be proactive and not waiting for the embezzlement to happen and then sending troops of auditors after the ‘party’ is over!
- Superior recruitment process- the organisation should try as much as possible to get the right people (of integrity) in the organisation in the first place.Seek out for references on the prospective employees and get to know what kind of people they are and what drives them.
- Organisation culture. Generally treat employees fairly, give them fair rewards for their performance. A robust performance management system will weed out those not consistently living the values of the company while rewarding those that are performing well and portraying the right behaviours.
Sam:
Thank you for a most comprehensive response!