Procurement corruption in the UK – Transparency International’s View

Transparency International is, quite simply, a wonderful organisation – the world’s leading non-governmental anti-corruption organisation. They raise awareness, suggest reform and design practical anti-corruption tools for institutions, individuals and corporations who want to combat corruption.

Their UK branch recently issued three “Corruption in the UK” studies, and one titled “Assessment of Key Sectors” contains a chapter on Procurement. It’s well worth reading, even if it is somewhat worrying in places! Here’s a key extract, which fits nicely with our recent debate on gifts and the Bribery Act.

“One interviewee, experienced in the field, indicated that there was often a grooming process involved in the corruption of public sector employees involved in procurement. Corruption “starts with a cup of tea,” moving on to corporate hospitality and offers of event tickets, before moving into more blatant inducements, such as the use of holiday accommodation with a clear understanding that this is linked to favouring a particular bidder. This process not only enables the contractor side to test out the corruptibility of the client-side officer – acclimatising him or her to the receipt of hospitality and inducements – it also makes it harder to report more blatant offers of bribes for fear of revealing that some hospitality has already been received. The level at which the client-side officer perceives a bribery offence is being committed may also vary”.

The report also identifies a number of flags – things to look out for that might indicate fraud or corruption in the procurement space.

  • Undeclared conflicts of interest;
  • Paperwork processed for payment after the work has started;
  • Use of a single source without justification;
  • Suppliers unknown to staff, but dealt with exclusively by one individual;
  • Double dipping: ie the repeated (sequential) submission of duplicate invoices;
  • Persons insistent on using a particular supplier;
  • Number of orders submitted which are beneath approval thresholds;
  • Volume of work that does not relate to amount of invoices raised;
  • Control of variations: eg are variations justified against the contract? Have variations been created to cover invoices?
  • Emergency works: are they really required?

The rather worrying overall TI conclusion is that there isn’t much appetite to really look into procurement related fraud; and that it is almost certainly more widespread than people realise. My personal experience supports that – I know of procurement related frauds in a number of organisations, none of which ever hit the public eye.

And that is by no means restricted to the public sector – the EU and national rules and regulations do provide protection, and my view is that there is actually more fraud and corruption in the private sector, it is just even less visible and publicised for obvious reasons!  Certainly three  of the most audacious examples I’ve see in my career have been in the private sector, and none ever hit the press…  (Perhaps that’s an idea for a future series here -  “great frauds I have known…”)

Anyway, be vigilant, and if you’re interested in the topic, Transparency International are well worth checking out.

Voices (11)

  1. Tim Williams:

    On the subject of procurement fraud, BBC Scotland is broadcasting a documentary tonight (20th September) titled ‘Scotland’s Property Scandal’ on BBC1 Scotland after the news at 22:35. It will also be available on the BBC iPlayer, or Sky Channel 971 for those of you who don’t have terrestrial access to BBC Scotland.

    The programme will look at the allegations of corruption within the Property Conservation Department of Edinburgh City Council, where 15 employees (almost half the department) have been suspended during an investigation by Deloitte and the police.

    The Tenders Direct website also has a blog entry on the subject http://bit.ly/mXZrk0

  2. Ben:

    I’d also be on the lookout for unnecessarily over-specked purchases. Not sure whether that just comes from lazy procurement – make certain that this will do the job – or whether it’s corrupt but either way it makes purchases unnecessarily way too expensive. I’ve fought it in the past but it’s not my problem now. Pastures new. 🙂

  3. bitter and twisted:

    The only correlation between seniority and honesty is that the most incompetent crooks already got weeded out .

  4. Steve:

    There are a couple of different types of fraud here…. I would distinguish between an organised corporate fraud: often an organisation setting out to win contracts by inappropriate means. And individuals, ripping their employer off. Though sometimes one of those will lead to the other: different oversight methods are required for each.
    A major challenge is that senior managers are often unwilling to accept that it could be happening in their organisation. One CEO took six months to eventually let me run some basic checks, that uncovered an employee fraud of around £1m. Others never let me run those checks (‘we employ good people here’).
    Does anybody have any data on which people are most likely to succumb? Is it the Buyer, accepting that Christmas hamper? The Engineer, insisting that only xyz’s product will do the job properly? Sales, using any method to get that bonus? Accounts, as they have easiest access to the money? Or… who ?

    1. RJ:

      There’s also a difference between knowingly accepting a bribe or conducting a fraud and unconsciously (or perhaps semi-consciously)being influenced by inappropriate means. In addition, organisations often operate a form of double-speak in that many of the organisations for which I have worked have run internal training advising against accepting undue hospitality or gifts, for example, whilst at the same time lavishing millions on their own corporate entertainment budgets.

  5. Woodbine:

    We did some research for one of the big corporate investigation firms recently, bringing together a range of data sources on fraud events in business. Over 90% of the events we studied used the legitimate contracting / procurement process to process funds illegally.

    In large scale fraud it is about manipulating valuations in order to move money in an apparently legitimate way. At the lower level, it is about approving the wrong suppliers for kickbacks, or buying items for resale.

    Another common feature was that fraud was being committed by professionals who were coming towards the end of their career and who faced an uncertain future because they accrued too little in pensions and other savings.

  6. Dan:

    I got a christmas card from a supplier once….

    1. Watcher of the Skies:

      Dan – I hope you are ASHAMED of yourself!

      1. Jean:

        You should have sent it back, or at least reciprocated if you have an expense account!

  7. RJ:

    Interesting posting in that you acknowledge how blurred the lines are in this area. Like you, Peter, I have been aware of several genuine procurement frauds over the last 20 years or so: including straghtforward thefts of materials, ordering goods for personal use and the slightly more subtle creation of dummy suppliers.

    However, so much of what still happens in business as a “normal” state of affairs is intended to have the same effect of skewing the marketplace and insidiously embeds itself in the workplace. I’m sure we have all seen and most of us probably work within bans on “excessive hospitality” or gifts that go beyond a trivial value but this article highlights that even the most minor of benefits could be leading to something more. After all, companies don’t permit significant entertainment budgets simply out of the goodness of their hearts: it’s a part of the overall marketing spend which is ultimately geared towards increasing sales volumes.

    The problem as ever, though, is where to draw the lines. In most serious transactions, doing business is a series of personal interactions and, more often than not, decisions cannot be made on purely objective grounds once we get beyond purchasing the proverbial “widgets” or commodities. It’s therefore nigh on impossible to legislate against every possible eventuality without completely stunting your ability to deliver what’s best for the organisation.

    As procurement professionals we often pride ourselves on our ability to navigate this minefield, drive true value from relationships and leveraged negotiations and maintain personal and corporate integrity. When we achieve this, we can be among the most valuable employees (or consultants) in a business.

    I suppose, therefore, that the message is to beware the corrupt and the naive and to try and protect against both.

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