Procurement fraud and irregularities in public sector

1. GOVERNMENT CONTRACTAND
PROCUREMENT FRAUD
CPA Kandole Patrick FCCA
kandles2009@gmail.com
Chishamba- Zambia
MoH-UNDP
Feb.2018
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• Procurement is the acquisition of goods, services or
works from an external source
• A contract binds the relationship between purchaser
and supplier.
• Quality and quantity of service delivery depends on
effectiveness and efficiency in procurement process
• VFm has a functional relationship with procurement

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• a fraud examiner must understand the details of
the contracts and procurement process for a
successful investigation
• Government spends over 80% of budget through
procurement of goods and services

4. Possible risk?
• Kickbacks?- the giving or receiving anything of value to
influence a business decision.
• Conflict of interest?-being a part-owner in the vendor
company, or knowing someone close, e.g., a spouse or
other family member, who works for the vendor and can
receive rewards for business the employee provides.
• Bid fixing for gains
• Fraudulent disbursements
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5. Investigation process
• Follow through each phase
1. Pre solicitation phase
2. Solicitation phase
3. Evaluation and award
4. Post award and administration
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6. Pre-solicitation risk areas
A. Need recognition- collusion with supplier so as to
create a need, kickbacks?
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7. Pre-solicitation risk areas
A. Working out specifications-
1. bid tailoring where official asks supplier to make suitable
specifications,
2. Vague specification, official makes deliberate careless vague
specifications so that supplier asks for variation orders or
increase prices in future.
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8. Pre-solicitation risk areas
1. Narrow specifications- eliminate competitors and tailor to
accomplice supplier capabilities
2. Broad specifications so as to accommodate an otherwise
unqualified bidder
3. Change order abuse- submit low bids and look for variations in
designs and get advantage of early entry
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9. Pre-solicitation risk areas
[detection may be difficult unless there is a leak, or unexplained
variations or specifications are exactly those of winning
contractor], look for variations from standard and accepted
procedures
A. Determining the procurement method
B. Development of award criteria
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10. Solicitation phase risks
A. Bid manipulation schemes
1. Open bids prematurely and leak information to competitors
2. Altering bids
3. Remove required documents from bid envelopes
4. Extending bid opening dates
5. Short notice while preferred bidders are secretly given advance
info
6. Leaking reserve prices
7. Accepting late bids, change deadlines [so the last bidder wins?]
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11. Solicitation phase risks
B. Collusion among contractors
1. Contractors submit complimentary bids, “shadow bids” too high
to be accepted, others give low or unserious bids so a required
one wins, just to appear to create competition
2. Bid pooling, or rotation bidding- suppliers share information to
avoid competition and push prices upwards
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12. Solicitation phase risks
1. Bid suppression- bidders pull out at last minute so as to leave
one bidder [ the winner will usually sub contract to those who
withdraw]
2. Market division- competitors agree to refrain from competing in
some works segments in regions or products
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13. Solicitation phase risks
1. Phantom bids- a genuine bidder submits fictitious shell
companies which appear to show competition, and sometimes
these are staff
2. Defective pricing financial proposals that will be amended later,
details and totals do not tally
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14. Bid collusion Red flags
• Winner sub contracts to looser
• Winning bidder too high
• Apparent rotation pattern for bidders
• Qualified contractors do not bid
• Bid protests from other bidders
• Joint venture bids
• Unclear pricing in bids
• Materials used differ from those in bids
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15. Post award and execution
A. Product substitution- supply non conforming goods,
staff, Labour and bills for high quality as specified, risk
high where purchaser relies on contractor integrity and
less supervision
B. Cost mischarging- bills for unallowable costs, or
transfer losses from other projects, false time
cards…alcohol, entertainment, R&D..
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16. Concealment and red flags
1. Low cadre staff sign work certificates
2. High percentage of returns for non conformity
3. Product compliance certificates missing
4. Material testing done by supplier
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17. Concealment and red flags
1. Counterfeit products
2. Delivery of used or re worked parts
3. High number of repeat works
• To detect use independent valuers and increase
supervision and inspection
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18. Challenge?
• What is the evidence?
• Is it clear and convincing?
• Who are the witnesses? Are they credible?
• What is the amount of loss?
• To whom is the loss attributtable?
• Can it be proven?
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19. Detection
• Interviews at all levels within the company can give insight
into the daily operations and can reveal fraud risks which
may be otherwise unknown to the organization.
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20. Detection
• Background checks can provide information on the
background, integrity, and reputation of selected
individuals and entities.
• A small amount of time spent performing a background
investigation such as at registrar of companies might
reveal connections between employees and vendors.
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21. Procurement Processes audit: discussion
• Identify risk in each case, detection and prevention
method
• Objectives for the procurement
• Types of procurement processes
• Types of procurement[ works..]
• Pre bidding
• Bidding
• Evaluation
• Negotiation
• Award and contracting
• Supervision
• Payment processes
• Retention period
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22. PROCUREMENT FRAUD
THE END
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