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Watch out for contract management incompetence, fraud

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Fraud in contract management relates to deliberate diversion of project resources for personal gain.

PURCHASING & SUPPLY: NYASHA CHIZU

Procurement personnel are expected to assist the chief executive officer in his fiduciary duties by protecting the interests of the shareholders, directing resources towards the project requirements.

It is the role of every contract manager to ensure that resources are channelled towards activities that contribute directly to the project’s success.

On the other hand, businesses fail not because of fraudulent activities related to procurement and contract management, but because of a lack of capacity to evaluate and manage the procurement and contract management process that include failure to identify and address procurement and contract management related challenges.

The two situations have the same implications on the project’s performance and eventually the business at large inevitably loses money.

The only difference is that where fraud is involved, the business loses money at the expense of personal enrichment of individuals involved.

Procurement and contract management decision-making processes need clear regulations and procedures in order to manage risk associated with fraud.

The major source of fraud is related to conflict of interest in procurement and contract management decision-making processes.

Conflict of interest arises where an official responsible for procurement and contract management decision-making has a personal benefit from the transaction.

This could be as a result of the direct relationship with the business, where that person may be a director or a shareholder.

The relationship may be indirect, where a close relative of the decision-maker is involved in that business.

Both situations nuetralise independence in decision-making that is key to sound procurement and contract management.

In order to reduce effects associated with fraud in procurement and contract management decision-making, organisations must invest in systems that promote and maintain an ethical environment.

Some world-class organisations demand that their employees declare in advance any business interest that they may have.

Management may be called to decide whether to maintain a staff member who poses high risk of personal interest due to the relationships that might be existing.

In the public sector, it is taboo to make procurement decisions that personally benefit the decision-maker, since it disadvantages competitors, who also contribute to the fund from taxation.

It is rated the highest form of corruption since the disclosure requirements are nuetralised by the influence a conflicted officer have over the independence of procurement and contract management officers.

Misuse of resources needs to be managed since it results in the disruption of project activities and leads to legal actions.

The best way is to maintain and follow fraud control procedures and to ensure that there are proper systems for effective contract management.

This is because of the fact that if procurement and contract management processes are not effectively managed, the desired results will not be achieved even when fraud did not exist.

This leads to failure to identify and address the procurement and contract-associated problems that leads to the organisational failure overally.

In order to hasten the procurement and contract management evaluation process, it is important that the organisation develops systematic evaluation methods for every project.

Projects performance require adequate analysis of the physical and financial performance.

Appropriate techniques are required to effectively evaluate the quality and quantity based performance on a project.

At the end of the day, all projects must deliver appropriate returns to investors if they are effectively managed.

It is important that problems associated with contract management are effectively identified and addressed.

This is achieved by agreeing in advance on the performance criteria, in order to effectively apportion liability and develop project check points that includes evaluation clauses in the contract.

In addition to this factor, a contract is effectively managed when there is a good relationship between the parties. This allows for effective dialogue.

Appropriate skills are, therefore, necessary for the actual implementation of performance and contract management strategies to minimise the effects of incompetence and fraud.

Nyasha Chizu is a fellow of the Chartered Institute of Procurement and Supply writing in his personal capacity. Feedback: nya.chizu@gmail.com Skype: nyasha.chizu

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