Supply Excellence — Procurement Gone Wild! Fry’s Exec Takes Advantage of Sloppy Process

Procurement Gone Wild! Fry’s Exec Takes Advantage of Sloppy Process

January 9th, 2009 · by John Lark · No Comments · best practices, contract management, sourcing, supplier management, supply management, supply risk

Spend management is known to prevent wasteful expenditures, but it’s rarely credited with being able to prevent crimes. However, the indictment of a Fry’s Electronic’s VP for defrauding the company and it’s suppliers of $65 million could have been avoided if the company had a procurement process in place based on managing spend visibility and supplier compliance via key technical solutions.

Ausaf Umar Siddiqui, the vice president of merchandising and operations for Fry’s in San Jose, was indicted last month for embezzling $65 million, according to the San Francisco Chronicle.

The Internal Revenue Service alleges that by changing policies so he could buy directly from vendors and then persuading several vendors to charge Fry’s commissions that they kicked back to him, Siddiqui accumulated about $65 million in a shell company account since 2005.

Apparently, Siddiqui spent the bulk of that money gambling in Las Vegas. Bank records show he spent $121 million at the MGM Grand and the Venetian since 2005 (which makes me wonder where he got that extra $56 million). That’s a long way from selling computers on the original Fry’s showroom where he started with the company 20 years ago. Believe it or not, it is alleged that this went on for years, and would still be going on had Siddiqui not left some incriminating papers on his desk that were seen by a high-level exec who alerted the IRS in October.

So, how could all of this have been prevented?

Well the fact that some spreadsheets left on the VP’s desk were the only “detection system” the company had in place is very surprising. Smart companies now rely on compliance-based vendor relationship and purchasing processes with controlled authorization flows. Conducting transactions electronically with the supply base adds a critical set of checks and balances within the system that can raise a red flag when something suspicious - like embezzling $65 million - occurs. The critical underlying principles are managed compliance and visibility. Anything less is a tremendous risk to the company, its reputation, shareholders, supply base and maybe even the executives’ rap sheets.

John Lark is a Senior Product Marketing Manager with Ariba specializing in the economic and business trends driving emerging procurement technologies.

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