A question I’ve been asking of those involved in P2P compliance and controls, quite a bit recently, is whether or not they’ve seen a rise of procurement fraud in recent years. Most respond with the simple party line answer: “no”. But lurking beneath the surface of many procurement organizations, even more sophisticated ones like Best Buy, are a small percentage of team members who are clearly up to no good. Granted, this percentage will vary between company and industry, but it’s likely the recession is causing even more employees without a clear understanding of right and wrong to push the limits of their activities. This behavior is happening inside some of the most respected CPG/food companies, according to a recent, NYT article on the subject, including Kraft, Frito-Lay, Safeway, Nabisco and B&G Foods. In fact, Robert Watson, “a top ingredient buyer for Kraft,” apparently took one bribe because “he needed $20,000 to pay his taxes.”
I was tipped off to this story from a Spend Matters reader who sent me a link to it yesterday. And I’ve been engrossed in it every since, in part because of the magnitude of the alleged activities and the fact it involved some of the more advanced procurement organizations out there. Our own benchmarking research suggests Kraft is among the most innovative CPG/consumer foods companies when it comes to embracing sophisticated procurement, supply chain and IT solutions and processes (they’ve bought solutions from SAP, Ariba and BravoSolution, among others, to automate their direct and indirect materials procurement operations and to improve their sourcing capabilities).
Yet a Kraft employee was very much involved in a “scheme [that touched] more than 55 companies” according to investigators. Moreover, the scandal went beyond bribery and procurement fraud to supplier foisting (with buyer’s consents) sub-quality and dangerous ingredients in some of the deals. This would ultimately result in tainted and inferior products ending up on dinner plates, as “in many cases …the tainted ingredients wound up in food sold to consumers.” So much for ERP, P2P, e-sourcing and spend analysis for detecting fraud, I suppose!
In the case of Kraft, the procurement manager at the center of the investigation was already a pro at the procurement fraud game at the time he solicited a $20K bribe to fund his taxes, so he called a broker for a “California tomato processor that for years had been paying him bribes to get its products into Kraft’s plants.” But little did he know that his call to his supplier was wiretapped by Federal investigators…
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- Feds: Tomato Broker Took Payoffs to Buy Tainted Food (crooksandliars.com)
- Bribes Let Tomato Vendor Sell Tainted Food (nytimes.com)