Any act of fraud and corruption in any project’s activities depletes funds, assets and other resources necessary to fulfil the projects’ mandate. Fraudulent and corrupt practices can also seriously damage organization’s reputation and diminish trust in its ability to deliver results in an accountable and transparent manner. It may also affect staff and personnel effectiveness, motivation and morale, and impact on the Organization’s ability to attract and retain a talented work force.

1. Managing Fraud &
Corruption in Projects
Oyewole O. Sarumi PhD

2. Learning Objectives
• At the end of this session, participants will be
able to:
• differentiate between fraud and corruption;
• list different ways corruption manifests itself;
• explain why corruption flourishes; and
• discuss the ways to prevent fraud and corruption in
projects.

3. Let’s interpret this cartoon

4. Why Corruption and
Fraud are problems?

5. Introduction
• Any act of fraud and corruption in any project’s
activities depletes funds, assets and other resources
necessary to fulfil the projects’ mandate.
• Fraudulent and corrupt practices can also seriously
damage organization’s reputation and diminish trust
in its ability to deliver results in an accountable and
transparent manner.
• It may also affect staff and personnel effectiveness,
motivation and morale, and impact on the
Organization’s ability to attract and retain a
talented work force.

6. • Organizations must have zero tolerance for fraud
and corruption if they are to succeed as a
corporate entity.
• Staff members, non-staff personnel, vendors,
implementing partners and responsible parties
should not engage in fraud or corruption.
• Organizations need to set modalities for how all
incidents of fraud and corruption to be reported,
be assessed and, as appropriate, investigated in
accordance with the already policy framework.

7. • Responsible organization ought to pursue
rigorously disciplinary and other actions against
perpetrators of fraud, including recovery of financial
loss suffered
• Commitment to preventing, identifying and
addressing all acts of fraud and corruption against
the organization through raising awareness of fraud
risks, implementing controls aimed at preventing
and detecting fraud and corruption, and enforcing
this policy should be institutionalized.

8. Definition of fraud and
corruption
• The definition of fraud and corruption varies
among countries and jurisdictions.
• The term is commonly used to describe a wide
variety of dishonest practices.

9. What is fraud?
•Fraud is a knowing misrepresentation of
the truth or a concealment of a material
fact to induce another to act to his or
her detriment.

10. What is Corruption?
• Corruption is the act of doing something with an
intent to give an advantage inappropriate with
official duties to obtain a benefit, to harm or to
influence improperly the actions of another party.
• Actions taken to instigate, aid, abet, attempt,
conspire or cooperate in a fraudulent or corrupt
act, also constitute fraud or corruption.

11. What is corruption?
Jakarta Business Networkers
Fraud and Corruption in Indonesia PwC
Corruption Fraud
vs
Offering or receiving something
to Influence improperly the action
of another party
Action of misrepresentation that
knowingly is misleading
to gain financial benefit or avoid
obligation

12. In the context of World Bank operations,
fraud and corruption have been defined
as follows:
• “Fraudulent and corrupt practices include the
solicitation, payment or receipt of bribes, gratuities
or kickbacks, or the manipulation of loans or Bank
Group-financed contracts through any form of
misrepresentation. Fraudulent or corrupt practices
also include any situation in which staff members
have abused their position or misusedWorld Bank
Group funds or other public funds for private gain.”

13. Forms of Corruption
• Corruption may be grand, involving large
transactions and high-level politicians and
bureaucrats.
• It may also be petty, involving small payments and
favours extracted by low-level officials as a part of
their daily transactions with the public.

14. • Corruption may be episodic, affecting only isolated
actions in an otherwise clean system.
• It may be systemic, permeating all activities of the
public sector.

15. Different ways Corruption
manifests itself
• In the form of bribes that may be used to:
• influence the award of public contracts,
• acquire various benefits from government,
• lower tax liabilities,
• obtain licenses,
• expedite government processes,
• affect judicial decisions, and/or
• lower penalties.

16. • In the form theft and misuse of public assets.
• falsification of accounts to cover diversion of public
funds to personal accounts.
• abuse of official discretion.
• disclosure of privileged information to help friends
and relatives.

17. Bribes- How do the schemes
work?
• Many of the schemes occur in three stages:
• an agreement to pay a bribe to win a contract
award, which necessitates some form of bid rigging
to exclude other, usually more qualified…
• cheaper bidders (because their prices will not be
burdened with the cost of bribes), and
• fraud (overcharging, failing to perform, etc.), to
recover the cost of the bribe and exploit the
corrupt relationship.

18. Why Corruption flourish
• Corruption is a result of a complex interaction of
economic, institutional, political, social, and
historical factors. It tends to flourish:
• when public sector policies generate economic
rents,
• institutions are weak,
• political and bureaucratic power is exercised for
personal gain,
• society does not forcefully disapprove
corruption,
• voice mechanisms are not strong.

19. • excessive discretionary power vested in public
officials, monopolistic authority,
• lack of transparency in the functioning of
government, absence of effective accountability
systems,
• high cost of getting to public office, and
• low public-sector wages also encourage fraud
and corruption.

20. Massive Cost of Corruption
• Corruption imposes massive costs on countries, institutions,
and ordinary citizens.
• It affects macroeconomic stability by encouraging wasteful
and ineffective government expenditures and tax evasion;
• discourages investment, including foreign direct investment;
• raises the cost of doing business;
• reduces competitiveness of domestic enterprises in the
international market;
• corrodes public institutions by subverting laws,
• rules, regulations, and institutional checks and balances; and
• undermines political legitimacy.

21. • Corruption obstructs economic growth and
development;
• creates a serious risk of marginalization in the global
economy for countries with high levels of corruption;
• imposes a disproportionately heavy burden on the
poor by siphoning off resources from antipoverty
programs and by creating barriers of bribery that deny
the poor access to public goods and services.
• reduces the development impact of international
assistance to developing countries.
• in many developing countries corrupt public officials
misappropriation of aid resources weakens the support
for aid programs.

22. Fraud by contractors and
consultants
• Fraudulent practices by contractors, especially those
that pay bribes, are ubiquitous and create very
significant losses.Among the most commonly observed
schemes are:
• Billing for works never performed, or consultants never
employed, or expenses never incurred (this is how it is
possible to steal 90% of a project).
• Failing to meet contract specifications, particularly for the
construction of roads (failing to lay the proper foundation, or
to include drainage, or to use the proper materials).
• Delivering substandard or defective goods, expired or
adulterated drugs, used vehicles or computers as new (quite
common).

23. • Billing for engineering or consulting studies at inflated
rates, or delivering useless boilerplate or plagiarized
product (in several cases clipped from the internet) at
virtually no expense.
• Overcharging for goods and civil works, often by a factor
of three or four, or even more.
• Submitting false or exaggerated CVs for personnel, and
billing less qualified, lower-paid staff as higher-level
personnel.
• Submitting forged or false bid securities, performance
certificates and financial statements.

24. Frauds by local project
officials
• Frauds by local project officials include:
• Diverting project assets – from computers to
automobiles to heavy road-grading equipment – to
the official’s private use.
• Unnecessary or padded foreign travel for supposed
meetings with suppliers, study tours or training.
• Creating “ghost employees” and fictitious expenses
and diverting the payments.
• Leasing warehouses, equipment, or “office space” to
the project or contractors.

25. Group Activity
• Financial statement fraud
• Procurement fraud
• Bank card and cheque fraud
• Cyber fraud
• Counterfeit goods fraud
• Employee fraud
• Money laundering
• Tax fraud
• Insurance fraud
• Expense claim fraud
• Misappropriation of assets
• Insider trading
• Etc – add others please.
• There are many kinds of
• financial crime:
• In your group, discuss
and classify which ones
fall under Financial
Crime and Project
Fraud.
• Share your views with
the whole class

26. Sectors reporting the least bribery and corruption:
Source: PwC GECS
Jakarta Business Networkers
Fraud and Corruption in Indonesia PwC
Industries most at risk of bribery and corruption
Sectors reporting the most bribery and corruption:
Sector % of respondents
reporting
Financial services 19%
Professional services 18%
Entertainment and media 14%
Sector % of respondents
reporting
Engineering and construction 50%
Energy, utilities, and mining 42%
Government/state-owned enterprises 35%

27. Rationalisation
• I’m doing the Company a favour. This
will definitely enhance shareholder
value
• I’ll help expose my Company’s
internal control weaknesses
• I’ll just borrow the money and return
it later
• I deserve it since I’ve sacrificed so
much for the company…
Incentive – fraud is often committed
because perpetrators are in some
form of financial difficulty or need
(e.g. gambling, drugs, living beyond
means, etc.)
• Pressure to meet loan covenants or
forecast numbers
• Pressure to meet market expectations
Opportunity
•Fraudsters are in the right position at the right time
•They recognise and seize the opportunity to commit fraud
•They understand operations, policies and procedures, and have access to
records/funds
Introduction to the Fraud Triangle
It is generally accepted that the following three conditions must be present for fraud to occur:
Jakarta Business Networkers
Fraud and Corruption in Indonesia PwC
Opportunity
RationalisationIncentive
!Fraud

28. Methods for Detecting
Corruption and Fraud
1. Encourage and facilitate reports:
• The great majority of fraud and corruption cases
are detected by tips or reports, many anonymous.
Whistleblowers are often individuals who base
their decisions on religious convictions, and whose
choice to disclose information stands firm despite
the clear risks of subsequent reprisals

29. 2. Conduct “fraud audits”
• Standard audits are not designed to detect fraud
and seldom do. In fact, more fraud and corruption
cases are detected by accident than by audit.
• Internal and external auditors must be taught to
recognize red flags and to conduct special “fraud
audit” steps.
• Auditors need to know how to obtain and examine
these documents through contract audits.

30. 3. Perform better inspections:
• Better inspections will help detect the fraud and
deter the underlying corruption: a contractor that
cannot cut back on implementation or get paid for
work not performed will find it hard to afford
bribes, or a reason to pay them.

31. Preventing Fraud and Corruption in
Development Projects
• Fraud and corruption can divert funds and credits
to purposes other than those for which these were
sourced or granted.
• Such diversion would seriously affect the efficiency
and effectiveness of the concerned projects.
• Every organization and its staff have a fiduciary
responsibility to prevent fraud and corruption in
projects financed by it.

32. • Fraud and corruption can adversely affect
organization projects at any stage of the Project
Cycle.
• According to World Bank, some of the possibilities
are indicated below:
• Project Design Stage
• Procurement Stage
• Implementation Stage
• Financial Management

33. What is Red Flags
• “Red flags” are indicators of
possible corruption, bid rigging,
collusive bidding and fraud in
development projects.
• Knowledge of red flags, and the
schemes they indicate are useful
in evaluating complaints.
• Once it has come up, it should
be investigated.

34. Group Activity
• In your group, discuss the “Red Flags” of
Corruption, Bid Rigging, Collusive Bidding and
Fraud as in the table below:
• Share your group distillations with the group.
Corruption Bid Rigging Collusive Bidding Fraud
1.
2.
3.
4.
5.

35. The Visible “Red Flags” of
Implementation Fraud:
• TheVisible “Red Flags” of Implementation Fraud:
Roads, Structures, Equipment
• http://guide.iacrc.org/wp-content/uploads/Visible-
Red-Flags-9-28-09-WB-MASTER.pdf
• Let’s check this out and take note.

36. Project Design Stage
• Corrupt influences may be brought to bear on project
design to:
• Overstate physical requirements and over-
dimension project components to increase potential
corrupt earnings during implementation;
• Manipulate project design to benefit particular
suppliers, consultants, contractors, and other private
parties;
• Allow officials of the Borrower unfettered
discretion in allocating project resources amongst
beneficiaries;

37. • Define procurement and financial management
arrangements in such a way as would enable
project managers to divert funds for
unauthorized purposes;
• Create weak oversight and supervision
mechanisms that would prevent detection of
fraud and corruption; and
• Alter the timing of the project to suit vested
interests.

38. Procurement Stage
• The risk of corruption in the procurement of
goods, civil works, and services is particularly
high.
• Corruption at this stage may originate on the:
• Borrower (purchaser or employer) side
• Supplier (contractor or consultant) side.

39. Corrupt And Fraudulent Practices
On The Borrower Side
• Borrowers may attempt corrupt practices to
limit competition in the following ways:
• Insufficient or inadequate advertising.
• Excessively short bidding time.
• Bidding time allowed is apparent, not real.
• Misuse of legal and administrative
requirements.
• Inappropriate bidding procedures.
• Procedures that violate the secrecy of
bidding.

40. Corrupt And Fraudulent Practices On
The Bidder Side
• Bidders may attempt to manipulate the
procurement process through corrupt practices
such as the following:
• Unjustified Complaints.
• Collusion schemes. Some of the collusive
practices used include: prebidding
understandings among bidders; and lowest
bidder quitting.
• Misleading bids.
• Malicious front-loading.

41. Implementation Stage
• Corrupt and fraudulent actions during contract
implementation and contract management can be
very costly for a project and may be the main cause
of cost overruns.
• Often they involve collusion between the supplier
purchaser and the contractor-employer.

42. • Possible malpractices at the implementation stage
include the following:
• Corrupt contract amendments
• Unjustified complaints
• Overbilling/overpayment.
• Lower than specified quality.
• Fraudulent justification of delays.
• Flagrant theft.
• Manipulation of Alternative Dispute Resolution
(ADR) procedures.

43. Financial Management
• Corrupt or fraudulent practices in financial
management of projects may include:
• Duplication of payments
• Alteration of and tampering with invoices and
other supporting documents.
• Adulteration or duplication of accounting
records.

44. • Lack of supporting records.
• Ineligible payments.
• Misuse of funds.
• Unauthorized use of project property.
• Excessively high operational expenditures.
• Unreported discounts.

45. Financial Management
• Financial Management is of paramount importance in
the efforts to combat corruption. In the context of a
development project, financial management involves:
• Planning project activities accurately in a timely manner;
• Formulating the budget and costing project activities;
• Organizing the human and physical resources available
in a way to ensure that project objectives are efficiently
and effectively attained within the inherent cost
constraints;

46. • Conducting overall project activities toward
successfully accomplishing project objectives within
the allocated funding limits;
• Maintaining proper accounts; and
• Ensuring that the financial statements of the project
are regularly audited by independent auditors.

47. Conclusion
• Corruption and fraud are twin harmful vices against
development and overall corporate progress.
• There are various forms like bribe, bid rigging,
kickbacks and front companies to mention a few.
• Organization must put in place through policy and
ensure good governance to curtail and discourage
the practices.
• There may be the need to institute whistleblower
policy that ensure adequate protection of those
who come forward to spill the bean.

48. • In line with World Bank guidelines, areas to focus
upon to prevent these vices in developmental
projects include design, procurement and
implementation stages.
• Consideration should be given the financial
management of the project if our desire is to
combat corruption.
• Most of the evidence of bribery and fraud is found
in the contractor’s records and accounts, hence
better inspections and audits will help detect the
fraud and deter the underlying corruption.

49. References
• http://guide.iacrc.org/wp-
content/uploads/2011/06/U4-Brief-on-corruption-
and-fraud.pdf
• UNDP Policy against Fraud and other Corrupt
Practices Retrieved on Nov.14, 2017 from
file:///C:/Users/User/Downloads/UNDP-Anti-fraud-
Policy-English-FINAL.pdf