More Than an Ethical Issue: Conflicts of Interest in Procurement

An employee owes a duty of loyalty and due care to their employer. Even where no direct financial benefit arises, conflicts of interest pose a significant risk to the fulfilment of these obligations. Such situations must be carefully managed, as they may create opportunities for fraud within the organization, particularly corruption-related risks.

Corruption: The Türkiye Landscape

According to ACFE data, approximately 70% of fraud cases identified in the region that includes Türkiye are corruption-related. This figure clearly demonstrates how widespread and critical conflicts of interest risks are in this geography. Moreover, results from the international Corruption Perceptions Index (CPI) indicate that perceptions of corruption in Türkiye have deteriorated markedly in recent years. This trend should not be viewed merely as a matter of perception; rather, it points to weaknesses in governance, transparency, and internal control mechanisms that are increasingly translating into tangible corporate risks. In the investigations conducted by Cerebra, we also encounter numerous cases that corroborate this pattern and clearly illustrate the direct link between conflicts of interest and corruption.

The Link Between Conflicts of Interest and Corruption

Conflicts of interest often represent the first stage of corruption. When an employee is aware of a conflict of interest yet fails to disclose it and deliberately keeps it concealed, an ethical breach has already begun. From that point onward, the conscious transformation of such a situation into corruption by the individual concerned becomes only a matter of time.

For this reason, conflicts of interest must be identified and managed at their source, rather than after their consequences have materialized. Otherwise, organizations may find themselves intervening too late, with the resulting risks extending beyond financial losses to include serious reputational and legal consequences.

For example, if an administrative procurement manager’s close relative owns a company supplying workwear, good practice requires that this relationship be disclosed to management before any procurement decision is made. From that point onwards, the administrative manager must be fully excluded from the procurement process at every stage. They must not participate in, influence, or be involved in any way in the decision-making or approval mechanisms from the beginning to the end of the process.

Common Conflict of Interest Scenarios in Procurement

 Some situations that may give rise to conflicts of interest risks in procurement processes include the following:

• Obtaining undisclosed, concealed, or personal benefits from a supplier or contractor,
• Accepting inappropriate gifts, travel, accommodation, entertainment, or bribes from a supplier,
• An employee having a direct or indirect commercial relationship with a supplier or contractor,
• An employee holding a direct or indirect interest in a business that competes with the employer,
• An employee having, through themselves, their spouse, family members, relatives, or close personal relationships, a relationship of interest, influence, or dependency with a supplier,
• An employee involved in the procurement process influencing or intervening in supplier selection in a manner that compromises objectivity or impartiality,
• Non-transparent changes to supplier selection criteria designed to favour a specific supplier,
• Deliberately limiting or manipulating market research, tendering, or bid comparison processes.

When conflicts of interest are mentioned, the initial association is often limited to financial relationships between employees and third parties. However, the concept should not be interpreted so narrowly. Any situation in which an employee breaches their duty of loyalty or acts to the detriment of the employer’s interests may constitute a conflict of interest. Accepting inappropriate gifts, losing objectivity due to personal relationships, or positioning oneself in a way that influences a decision-making process all fall within this scope.

In a recent internal investigation conducted by Cerebra team, it was identified that the general manager of the victim company and their family were provided with a one-week luxury holiday by one of the company’s key suppliers. Following this benefit, commercial transactions with the supplier increased significantly, and standard tender and quotation procedures were bypassed, with work being directly awarded to that supplier. As this case illustrates, once such a relationship is established, it becomes virtually impossible for the individual concerned to make sound, objective decisions in the best interests of the company.

Conflicts of interest in procurement processes may pose serious threats to a company’s financial health and reputation. Companies must therefore ensure that their employees act solely in the interests of the organization and implement appropriate safeguards to mitigate these risks.

How Companies Can Manage Conflict of Interest Risks

 Organizations may reduce and manage conflicts of interest risks by implementing the following measures:

• Establishing whistleblowing mechanisms that provide secure and anonymous channels for employees to report ethical concerns, including conflicts of interest,
• Conducting regular training programs to raise awareness of what constitutes a conflict of interest, how such situations should be handled, to whom they should be reported, and the potential consequences of non-disclosure,
• Requiring periodic conflict of interest declarations from employees and ensuring these declarations are regularly updated,
• Addressing conflicts of interest in detail within ethics and compliance policies, regularly reminding employees of these policies and encouraging their use as practical guidance documents,
• Performing regular audits of procurement processes, with a specific focus on identifying and mitigating conflict of interest risks through preventive and detective controls.

Conflicts of interest in procurement do not only result in financial losses; they can also damage corporate reputation and undermine trust among employees. When effectively managed, organizations protect both their reputation and their ability to foster a fair, transparent, and ethical working environment.

Ultimately, a company’s success is measured not only by its financial performance, but also by its commitment to ethical values. Managing conflicts of interest is one of the clearest demonstrations of that commitment. For this reason, proactive action and the establishment of clear, practical, and enforceable ethical rules are essential.