MILTON MARGAI TECHNICAL UNIVERSITY

CONGO CROSS CAMPUS

FACUTY OF BUSINESS AND MANAGEMENT STUDIES
REGULAR AND EVENING DEGREE PROGRAMMES- SECOND SEMESTER
2022/2023 ACADEMIC YEAR

COURSE TUTOR: Mr. Chernor Maju Bah - +23278113725 - cmbcfc85@gmail.com

PROCUREMENT RELATIONSHIP AND ETHICS - (Year 4)

LECTURE ONE

Introduction to Procurement Ethics

Procurement ethics refers to the moral principles and values that guide the conduct of
individuals and organizations involved in the procurement process. Ethical procurement practices
are critical for ensuring fairness, transparency, and integrity in the procurement process, and for
preventing fraud, corruption, and conflicts of interest.

The procurement process involves a series of activities, including planning, solicitation,

evaluation, negotiation, and award of contracts. At each stage of the process, ethical
considerations must be taken into account to ensure that decisions are based on objective criteria
and those suppliers are treated fairly and impartially.

Ethical procurement practices are essential for both public and private sector organizations. In the
public sector, ethical procurement practices are critical for ensuring accountability, transparency,
and responsible use of public resources. In the private sector, ethical procurement practices are
essential for building trust and maintaining good relationships with suppliers, customers, and
other stakeholders.

Procurement professionals have a responsibility to uphold ethical standards and to ensure that
their actions are guided by the principles of fairness, transparency, and accountability. This
requires a commitment to ethical behavior, ongoing training and education, and the establishment
of policies and procedures that promote ethical conduct.

Procurement ethics is a fundamental aspect of the procurement process, and it plays a crucial role in
ensuring that procurement decisions are fair, transparent, and based on objective criteria.
Ethical procurement practices are essential for building trust, maintaining good relationships with
suppliers, and promoting accountability and transparency in the procurement process.

Definition of Procurement Ethics:

Procurement ethics refers to the principles and standards of conduct that guide the procurement
process. It involves making sure that procurement activities are conducted with integrity, fairness,
and transparency. Ethical procurement practices are essential for preventing fraud, corruption, and
conflicts of interest.

Importance of Procurement Ethics:

Ethical procurement practices are critical for ensuring that procurement decisions are based on
objective criteria and that suppliers are treated fairly and impartially. Ethical procurement
practices help to build trust, maintain good relationships with suppliers, and promote
accountability and transparency in the procurement process. They also help to prevent legal and
reputational risks associated with unethical behavior.

Overview of Procurement Related Ethical Issues:

There are several ethical issues that can arise in the procurement process. Some of the most common
issues include:

Conflict of Interest: This occurs when a procurement officer has a personal relationship with a supplier,
such as a family member or friend that could influence their procurement decisions.

Insider Trading: This occurs when a procurement officer has access to information that is not
available to the public and uses this information to gain an unfair advantage in the procurement
process.

Bribery and Corruption: This occurs when a supplier offers gifts or other incentives to a procurement
officer in exchange for preferential treatment in the procurement process.

Discrimination: This occurs when a procurement officer discriminates against a supplier based on
their race, gender, ethnicity, or other factors that are not relevant to the procurement process.
Lack of Transparency: This occurs when the procurement process is not transparent, and stakeholders do
not have access to information about how procurement decisions are made.
Procurement ethics is essential for ensuring fairness, transparency, and integrity in the
procurement process. Procurement professionals must uphold ethical standards, prevent
conflicts of interest, and ensure that procurement decisions are based on objective criteria.
Ethical procurement practices are critical for building trust, maintaining good relationships with
suppliers, and promoting accountability and transparency in the procurement process.

Professional ethics are guidelines or best practice that embody ideals and responsibly that inform
practitioners as to the principles and conduct they should adopt in certain situations.

Principles of Procurement Ethics The

main principles of professional ethics are:

Impartiality or objectivity

Impartiality or Objectivity: This principle requires procurement professionals to remain unbiased

and impartial in their decision-making process. Procurement professionals should not show
favoritism or discrimination towards any supplier or vendor, and they must make decisions based
on the best interests of the organization they represent.

Openness and full disclosure

Openness and full disclosure: Procurement professionals must ensure that all procurement
processes are transparent and open to scrutiny. They should provide all necessary information to
all stakeholders involved in the procurement process, including suppliers, vendors, and other
interested parties.

Confidentiality

Procurement professionals are required to keep all information relating to procurement

confidential. This includes confidential information provided by suppliers or vendors, as well as
confidential information about the procurement process itself.

Due diligence, competency and a duty of care

Procurement professionals must conduct due diligence when evaluating suppliers and vendors.
This involves researching and assessing the capabilities, performance, and financial stability of
potential suppliers to ensure that they meet the organization's requirements.
Fidelity to professional responsibilities

Procurement professionals must act with integrity and in accordance with their professional
responsibilities. They must avoid any behavior that could compromise their professional ethics or
the integrity of the procurement process.

Avoiding potential or apparent conflicts of interest.

Procurement professionals must avoid any conflicts of interest that could compromise their
objectivity and impartiality. This includes refraining from accepting gifts or favors from suppliers
or vendors and avoiding personal relationships that could influence their decisionmaking process.

These principles are to be interpreted in the light of the wider fields of personal and global ethics
shown in the diagram below. The range of corporal and individual issues relating to business
ethics that might be considered under the above headings is infinite. Reasons of space prevent
more than a brief reference to the following organizational issues that are of particular relevance
to procurement
Ethical issues relating to suppliers

These are the provision of practical help and advice, prompt payment, honesty and openness, e-ethics
and courtesy to supplier representatives.

Provision of practical help and advice

This can take such forms as:

 Helping suppliers to procure their own supplies more effectively and economically
 Assistance in finding alternative customers to prevent too great a reliance on a single source

 Provision of feedback on unsuccessful tenders

 Collaboration on design and production
  Supplier development
 Placing a proportion of orders with local suppliers, thus assisting the prosperity of the community
in which the procurement organization is located.

Prompt payment

The organization should help suppliers maintain their cash flow by:

 Paying invoices on time

 Ensuring that both finance and procurement departments are aware of the organization’s prompt
payment policy and adhere to it (bearing in mind a failure to pay on time puts the buying
organization in breach of their own contract)

 Dealing with complaints as expeditiously as possible so that payments are not needlessly deferred.
Under the UK Late Payments of Commercial Debts (Interest) Act 1998, which is based on an EU
directive, bills must be paid within 30 days. The act provides that, after 30 days, small businesses
(those with 50 or fewer employees) can claim interest retrospectively.

Honesty and openness

Honesty and openness are the opposite of deception, as defined by Robertson and Rymon: 24
‘one party’s intention to create or perpetuate a false belief in another party’. The same writers
identify four types of ‘bluffing’ that some procurement agents may adopt on the premise that, in
negotiations, their responsibility is to obtain the best possible price, quality and delivery and that
deception and manipulation of the supplier is an acceptable means of achieving the desired end.
The four examples of deception instanced by Robertson and Rymon are giving a false impression to
suppliers that:

 Other vendors are aggressively competing for a particular contract

 Time limits for the completion of negotiations apply
 a competitor is offering a better deal
 The selling firm is in danger of losing the contract.

From their research, Robertson and Rymon (2001) reported that:

  29 per cent of their respondents admitted to having deceived the seller
 The suggestions that there were other vendors and that the vendors might lose the contract were,
respectively, the most and least common forms of deception

 deceptive behaviour is likely to be the outcome of organisational pressure to perform or lack of

clear guidance regarding what is permissible, so there is ‘ethical ambiguity’

 Deception may be a recognised negotiating ploy: ‘the buyer may be selling a false deadline but the
seller knows that the deadline is false’. The writers also suggest that the replacement of short-term,
arm’s length by long term collaborative procurement arrangements is likely to be conducive to the
development of cooperation, interdependence and trust between buyers and suppliers.

E-ethics

The CIPS suggests that the Internet ‘is creating a new environment in which unethical behaviour
has far greater implications for companies than was previously the case’. In particular, the
balance of power in e-trading, as exemplified by e-auctions, is shifting in favour of the purchaser.
A typical code of ethics for e-auctions is that of Dow Chemicals:

Initiate the auction with the intent to award the business. Do not use an online auction as a
prospecting tool. Do not solicit, negotiate or accept offline offers once invitations have been sent to
auction participants or upon completion of the auction.

Ensure bidders have a clear understanding of what to expect before, during and after the auction: develop
and distribute clear auction rules and specifications.

Provide bidders time to prepare for the event, including strategic development and training.

Document and distribute the business criteria that will be used to award business.

Train bidders prior to auction:

– ensure bidders are comfortable with the online e-auction tool –

inform all participants of auction results in a timely fashion.

 Only invite bidders to participate if they can meet your auction requirements. Do not
allow phantom bidding.

The CIPS further suggests that, with B2B e-commerce, the issues of trust, access, identity, security,
privacy, property and confidentiality take on new dimensions.

Courtesy to suppliers’ representatives

There is evidence that sales representatives often have a poor opinion of buyers. This is likely to
be enhanced where sales representatives are prior to meetings kept waiting unnecessarily. It should
be appreciated by procurement staff that, allowing for travelling time and discussions, a sales
representative has a relatively short working day in 12.15pm and 1.30pm and after 4.30pm.

If kept waiting, the salesperson’s whole programme of visits in a particular area may be disrupted.
Other factors to bear in mind when receiving sales representatives should include:

 Using a suitable room for interviews

 Giving information regarding the times between which representatives will be seen 
Providing them with honest information.

While procurement staff should be open to information about new products and suppliers, they
should be frank, but courteous, about informing a representative, if there is no possibility of business,
to avoid making future calls. Above all, a buyer should never be patronising, rude or supercilious.
Such behaviour demeans both the representative and the buyer and is clearly not conducive to
establishing supplier goodwill.

While there must clearly be an exchange of pleasantries, it should be remembered that ‘time is money’,
for both the purchaser and the supplier.

Kennedy instances 22 different tactics used by unscrupulous buyers when dealing with
representatives. Not only are such tactics unprofessional, but they also negate a golden rule – always
treat others as you would like them to treat you. This rule is unambiguous and easy to understand.
The motives for endorsing it may be altruistic, but are actually a reflection of precautionary,
defensive self-interest.
Business gifts and hospitality
Policies with regard to the receipt by members of the procurement staff of gifts from suppliers,
especially at Christmas, and hospitality at other times vary widely. The three most common policies
for procurement are that members of the procurement staff:

 are forbidden to accept gifts of any kind and those received must be returned
 may retain gifts that are clearly of an advertising nature, such as calendars, diaries, pencils and so
on

 Are allowed to decide for themselves whether a proffered gift of hospitality is an appreciation of a
cordial business relationship or an attempt at commercial bribery. Our considered view is that the
third bullet point of the above policies is the best as it regards staff as responsible individuals,
capable of distinguishing a gift or hospitality from a bribe. There is also the fact that the first two
policies encourage subterfuge, such as having gifts sent to the buyer’s home address. There is,
however, the danger that younger, less experienced, lower-paid members of staff are likely to be
flattered to receive gifts, the implications of which are not always recognised. For this reason, it is
useful for all members of the procurement staff to receive guidance on ethical practice from
professional and organisational ethical codes and ethical training.

Procurement and fraud

What is fraud?

Fraud is defined by the CIMA as:

Dishonestly in obtaining an advantage, avoiding an obligation or causing loss to another party. The
term ‘fraud’ commonly includes activities such as theft, corruption, conspiracy, embezzlement,
deception, bribery and extortion.

The World Bank has identified the following violations that should be referred to their Department
of Institutional Integrity:

 contract irregularities and violations of the bank’s procurement guidelines

 bid rigging
 collusion by bidders
  fraudulent bids
 fraud in contract performance
 fraud in an audit enquiry
 product substitution
 defective pricing and parts
 cost/labour mischarging
 bribery and acceptance of gratuities
 solicitation and/or receipt of kickbacks
 misuse of bank funds or positions
 travel fraud
 theft and embezzlement
 Gross waste of bank funds.
The possibility of procurement fraud is of great concern to all organisations. The three essential
ingredients of fraud are intent, capability and opportunity. This situation creates a need to
maintain effective communication of accepted behaviour and codes of conduct, thereby clarifying
what is and is not acceptable behaviour. Procurement guidelines should always be clearly
communicated to all staff, contractors and suppliers.

Distinction between fraud and error

The basic distinction between fraud and error is that of the intention. Any error is unintentional –
that is, the person committing the error does not do so knowingly.

Errors are accidental and may arise due to negligence, genuine misunderstanding or
incompetence. With fraud, however, it is intentional. The person committing fraud does so
knowingly, willfully and with the motive of gaining advantage or benefit by cheating or causing
loss or injury to others, acting alone or in collusion with one another.

Indicators of procurement fraud

There are many indicators of potential procurement fraud. They include:
■ Excessive supplier hospitality to selected staff
■ New suppliers continually facing entry ‘obstacles’
■ Budget holders pressurising buyers to place work with named suppliers
■ A buyer’s lifestyle changing dramatically
■ Pricing schedules being completed in pencil
■ Suppliers and contractors being very familiar with senior staff
■ Specifications favouring a particular supplier
■ Supplier payments going unchallenged
■ The absence of supplier approval data ■
No supplier visits or audits.

As indicated in Table 17.3, opportunities for fraud occur at every stage in the procurement process.

E-procurement and fraud

E-procurement clearly provides many opportunities for both input and output fraud. Input fraud
can take such forms as the opening of accounts for non-existent suppliers who are paid
electronically, the payments going into an account designated by the fraudster, over-stating or
understating inventory amounts, deleting inventory records, copying of credit card numbers and so
on.

Output fraud tends to be comparatively rare. One example is that of sending unauthorized emails
with intentionally false information.

The prevention of fraud

The threat of fraud can be reduced in four ways.
 Establish a culture of integrity – Casabona points out that 85–90 per cent of computer fraud
is the result of an insider job. Some computer experts therefore claim that the most
effective security system is the integrity of company employees. Much fraud can be
eliminated by careful employee selection. Organisations that communicate and support a
commitment to integrity will create environments hostile to fraud.

When employees leave, organisations should immediately delete all access information of the former
worker and inform all relevant people of the termination.
Be alert to giveaway signs – giveaway signs of fraud include:
– Unfolded invoices that have not come through the post
– Too many orders to one supplier, except where single-sourcing applies
– Loss of supporting documentation
– Sudden, unexplained affluence
– Unwillingness of the employee to take holidays or accept a transfer or promotion to other work.

Evans and Maguire state that the commonest source of discoveries of fraud is outside information.
This includes the reporting of fraudulent practices by colleagues and disgruntled mistresses.

Take appropriate e-security measures – technological concerns in e-commerce are usually

divided into two broad categories – client server security and data and transaction security.
Client server security uses various authorisation methods, such as passwords and firewalls, to
ensure that only valid users have access to databases.

Data and transaction security involves ensuring the privacy of electronic messages by using encryption.

■ Recognise the importance of audits – audits may be internal or external. Internal audits in
relation to procurement were described in section 17.9. External audits, by members of a
recognised professional accountancy body approved by the UK Department of Trade and
Industry, are a statutory requirement under the UK companies acts. Contrary to popular belief, it
is not an auditor’s primary duty to prevent fraud, but, rather, make an independent examination of
the books, accounts and vouchers of a business for the purpose of reporting whether or not the
balance sheet and profit and loss account show a ‘true and fair view’ of the affairs and profit (or
loss) of the business according to the best information and explanations obtained. An audit may
include a physical verification of assets, such as inventory, and the auditors may also make
recommendations that can make the business less susceptible to fraud by its customers, suppliers
and employees. Where a fraud is discovered, the auditor has a duty to prove that fraud to its full
extent, regardless of the amount in question.

Environmental aspects of procurement

Being responsible towards the environment

Being responsible towards the environment is one aspect of the social responsibility of business and
should be a consideration when devising strategies.

According to the Environment Protection Agency Sierra Leone 2020:

The environment consists of all or any of the following media, namely, the air, water and land; and
the medium of air includes the air within buildings and the air within the natural or manmade
structures above or below the ground.

Important areas of environmental concern include the following:

■ More efficient use of raw materials in manufacturing operations – this applies especially to
timber and minerals. Consumer concern about rainforests has had a direct impact on the demand
for tropical hardwoods, which has affected timber producers, wholesalers and users. Of about 80
minerals used by industry, some 18 – including lead, sulphur, tungsten and zinc – are in relatively
short supply. Such materials will be subject to rising prices and demands for recycling.

■ Pollution and waste – pollution is defined by the Environmental Protection Act 1990 as:
Pollution of the environment due to the release (into an environmental medium) from any process
of substances which are capable of causing harm to man or any other living organism supported
by the environment.

■ Energy savings – energy to power industry is provided by the environment from such sources as
wood, fossil fuels, water, sunlight, wind and uranium.
Environmental procurement policies and management
DEFRA has stated that:

The procurement of supplies and equipment is a potent instrument of environmental policy. Careful
purchasing gives full weight to environmental considerations in the selection of products and can
help improve environmental standards by reducing pollution and waste. It can also, through the
natural operation of the market, influence purchasers and suppliers in their pricing policies and
product ranges.

The steps required to give effect to these objectives are shown in the figure below. These nine steps
are discussed below.