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IMPACT OF INFORMATION AND COMMUNICATION TECHNOLOGY ON PROCUREMENT FRAUD

CASE STUDY: COOPER MOTORS COOPERATION (U) P.O.BOX 1348 KLA

ABSTRACT

The study focused on the impact of information and communication technology on procurement fraud, case study of in Cooper Motors, the purpose of the study was to establish the impact of information and communication technology on procurement fraud.

The report focused on three specific objectives which include; to identify the various ICT techniques used to reduce procurement fraud; to establish the impact of ICT on procurement fraud in the sourcing process; and to investigate the causes of procurement related frauds in an organization.

The researcher employed descriptive research design; it provided the opinion of people about the subject knowledge on the impact of information and communication technology on procurement fraud. 25 respondents participated in the study.

The findings revealed that Electronic Fund Transfer (EFT) is an ICT technique used to prevent fraud. Findings also revealed that ICT is used in fraud management lifecycle. Finally the study revealed that low staff remuneration make employees to commit frauds, the study further revealed that conflict of interest causes of procurement related frauds

The report recommended that shareholder and executive directors should release funds to the company early so that to execute activities in time; the organization should offer free training to its staffs so that they can acquire skills to operate ICT equipments so that to minimize fraud in the organization.

The report concluded that, ICT plays an instrumental role in prevention and mitigation of procurement fraud, passwords in the computer can help to keep organizations information safely without any link to intruders or external persons, ICT tools such as cameras are source of security to premises, among others.

CHAPTER ONE

1.0 Introduction

This chapter covers the background of the study, purpose of the study, research questions, and scope of the study, significance of the study and definition of terms.

1.1.            Background to the study

Information technology plays a valuable role throughout the Fraud Management Lifecycle. There is not a stage in the Fraud Management Lifecycle that does not benefit from the effective application of information technology resources or suffer from inefficient or inflexible systems, processes, or staff. Information technology resources are frequently the key to the success or failure of the activities in the individual fraud stages and at times to the success or failure of the entire Fraud Management Department (Ernst and Young, 2000).

In the past companies were used to traditional buying, which was characterized by high procurement frauds inform of; non-value adding activities, forged documentation, poor trafficking of goods in transit among others. It is due to such inefficiency that many organizations are increasingly recognizing information and communication technology (ICT) in buying to reduce procurement frauds (Australian National Training Authority, 1999).

In the modern world, competition among organizations is a common issue. Every organization is looking at procurement efficiency as the only way for survival, therefore timely and accurate information is vital for effective decision making and proper management of scarce resources. Incase organizations are to manage the challenges of globalization and the volatile competitive business environment embracing ICT is necessary (Lysons 2003)

According to Chaffey (2007), information and communication technology involves the use of computers and telecommunication especially internet to send and receive information.

Procurement fraud occurs when an employee or other person related to a firm unlawfully gains an advantage in purchasing goods or services for that firm. Some of the more common types of procurement fraud are overpaying for products (and receiving kickbacks), creating and falsely paying duplicate vendors, creating and paying fictitious vendors, and paying for over-shipments from vendors (Frank E. Fox, 2010).

According to (Rene Hansen, Thembile Phute, Killron Dembe, and Synodia Chikanza (2005) Fraud as an aspect of corruption normally happens in organizations where the governance structures are weak or have become corrupted themselves. This is a worldwide trend, which cuts across all sectors.

Uganda as a country before the period of 2000, the level of fraud was not pronounced like it is happening now where there are many cases of fraud running on the media such as news papers, radios, televisions and magazines. According to report on the news paper (daily monitor Monday 23 may 2011), Uganda revenue authority (URA) noted that the government is losing revenue as a result of organized crime between staff of the institution and officials of clearing and forwarding firms. Ms Sarah Kasheka, the acting commissioner customs said that “at least 10 clearing agencies have been suspended for tax fraud including; under declaration of the value of imported goods, diversion of cargo, and forging signatures of URA officials”.

More frauds were also experienced during Tamangalo land issue, mismanagement of national social security fund and during CHOGM in 2007 in Uganda. According to the Public Accounts Committee (PAC) report on the Commonwealth Heads of Government Meeting (CHOGM 2007) Kampala, the committee estimated that CHOGM expenditure almost doubled from the authorized and appropriate budget of two hundred seventy billions shillings (270,000,000,000/=) to over five hundred billions (500,000,000,000/=). According to PAC report (2010), some roads which were designed by the consultants were never worked on yet the designers had already been paid. This led to loss of fund which was used on consultancy. The expense therefore is nugatory.

Procurement fraud is dishonestly obtaining an advantage avoiding an obligation or causing a loss to the organization these are like bribery, theft, embezzlement, false claims and many others (Lysons and Farrington 2006).

In relation to procurement fraud, information and communication technology involves the use of electronic means of e-procurement and internet software to place orders and make payments via computer based network (Bessant 1998)

Information and communication technology (ICT) is process of automatic acquisition, storage, manipulation, movement, control, display, switching, interchange, transaction or reception of data or information (Lysons 2000).

Organizations are looking at initiatives that can enable them obtain a better competitive advantage over their competitors, in terms of customer satisfaction. In order to achieve this goal executives in the information age are in need of instant and result oriented information in order to make strategic decisions. (Chaffey 2007)

Despite the fact there is constant improvement in ICT systems and the huge amount of money invested in ICT, Companies are still incurring heavy losses in terms of high costs, delayed delivery, bribery, bid rigging, missing of products in transit and above all poor customer service, this is very disturbing to all the stakeholders as to why such mishaps continue to happen. Basing on this background the researcher therefore seeks to investigate into the impact of information and communication technology on procurement fraud.

 1.2 Statement of the problem

Despite the fact that, there has been a great and constant improvement in ICT systems, evidenced by the huge amounts of money invested by companies, procurement fraud still exists, corruption, theft, missing of goods in transit and poor customer service. In addition, there is low response in providing management, clients and suppliers with accurate and timely information. Therefore, based upon the above the researcher intended to investigate into the impact of information and communication technology on procurement fraud.

1.3 Purpose of the study

The purpose of study was to establish the impact of information and communication technology on procurement fraud.

1.4 Objectives of the study

The objectives of the study were;

1. To identify the various ICT techniques used to reduce procurement fraud in cooper motors.
2. To establish the impact of ICT on procurement fraud in the sourcing process.
3. To investigate the causes of procurement related frauds in the organization

1.5 Research questions

1. What are the various ICT techniques used to reduce procurement fraud in cooper motors?
2. How does ICT impact on procurement fraud in the sourcing process in cooper motors?
3. What are the causes of procurement related fraud in an organization?

1.6 Scope of the study

The study scope covered the following aspects;

1.6.1 Study scope

The study scope covered the impact of ICT on procurement fraud, various ICT techniques and the other factors affecting procurement fraud.

1.6.2 Geographical scope

The study was conducted in cooper motors (U) Ltd P.O. Box 1348 Kampala.

1.6.3 Time scope

The period of investigation was from February-September 2012.

1.7. Significance of the study

• It will help the public in knowing the benefits of using ICT in reducing procurement fraud hence will give the confidence about procurement processes of coming up with a new supplier.
• It will benefit the organization in reducing costs associated with procurement fraud.
• Benefit stakeholders in making buying decisions about how to reduce procurement fraud by using the technique got in the study.
• Benefit future academicians and researchers in finding more information about how ICT can reduce procurement fraud and also can act to them as references.

1.8. Definitions of key terms

1.8.1. Information and communication technology

According to Lysons (2000) defines Information and communication technology as automatic acquisition, storage, manipulation, movement, control, display, switching, interchange, transaction or reception of data or information.

1.8.2. Fraud

According to Norman Katz (1996), fraud is a purposeful deception, misrepresentation, or concealment of facts intended to cause injury or loss to another party, typically for the sake of one own direct or indirect gain.

The Association of Certified Examiners of Fraud in the USA, define fraud as the “use of one’s occupation for personal enrichment through deliberate misuse or misapplication of the employing organizations’ resources or assets.”

The Collins English dictionary (1999) defines fraud as “a criminal offence in which a person acts in a deceitful way”.

1.8.3. Procurement fraud

It is s a dishonestly obtaining an advantage avoiding an obligation or causing a loss to the organization these are like bribery,theft,embezlement,false claims and many others (Lysons and Farrington 2006).

According to National fraud authority (2011), procurement fraud is a deliberate deception intended to influence any stage of the procure-to-pay lifecycle in order to make a financial gain or cause a loss. It can be perpetrated by contractors or sub-contractors external to the organisation, as well as staff within the organisation.