Procurement Fraud Risk Guide

There may be a reluctance to follow procurement guidance or involve procurement professionals where appropriate.

• Ensure that comprehensive procurement guidance is in place, with access to professional expertise as appropriate.

The need for particular goods or services may not be properly evidenced.

• Ensure that comprehensive needs assessment procedures are in place and are strictly followed. These should include effective segregation of duties.

The procurement of particular goods or services may sit outside the organisation’s procurement plan, or timing may be unusual.

• Ensure that needs assessment procedures include proper authorisation requirements.

Requirements may be either over specified or deliberately vague, possibly to favour a particular supplier.

• Make use of standard templates for tenders, to minimise subjectivity and variation.

There may be an unusual pattern or overuse of single sourcing, possibly used to favour a certain supplier and influenced by a conflict of interest or bribery.

• Monitor use of single sourcing on a periodic basis, to ensure it is not excessive and is properly justified in each case. Up-to-date and accurate management information is key for monitoring purposes.

There may be signs of a close relationship between a public official and a supplier.

• Ensure staff are aware of the actual and perceived risks of a close relationship with suppliers.
• Ensure staff are aware of, and abide by, the principles of public life and any applicable code of conduct.

There may be undeclared conflicts of interest among public officials involved in specifying requirements or developing the business case.

• Ensure that conflicts of interest are declared and properly managed. This may include an annual declaration and a declaration in relation to each procurement exercise.

There is the risk of bribery or coercion from potential suppliers, linked to gifts or hospitality offered to public officials.

• Have a clear Gifts and Hospitality policy in place, and ensure that all staff are fully aware of its existence and contents and adhere to it.
• Maintain a gifts and hospitality register and review it periodically.

Commissioners may make a case for multiple procurements of the same goods or services, a possible indicator of splitting to avoid proper authorisation or the need for a tender process.

• Analyse tender/contract patterns and values, especially around authorisation thresholds.
• Analyse expenditure patterns across suppliers to help detect possible splitting of tenders into multiple smaller amounts to circumvent authorisation thresholds.

Insufficient due diligence or market engagement regarding proposed new suppliers/contractors, and existing suppliers.

• Perform appropriate due diligence on all proposed new suppliers and contractors, e.g. checks to Companies House or trade associations. Also periodically monitor the status of existing suppliers to ensure no change.

There may be a lower than expected number of tenders, suggesting manipulation of the specification or collusion between bidders in the form of bid rotation or market sharing.

• Conduct market engagement exercises to help ensure appropriate levels of competition. This may include seeking feedback on the proposed specification to ensure it is not restrictive.

Bidders may withdraw from the tendering process unexpectedly, again suggesting collusion by way of bid rotation or market sharing.

• Include non-collusion declarations in tender documentation.
• If fewer than expected tenders are received, seek feedback from tenderers who downloaded the tender documents but decided not to bid.

There may be evidence of close links between bidding organisations, which increases the risk of collusion.

• Ensure there are clear channels for suppliers and contractors to raise concerns about possible collusion. Make sure that concerns are listened to.

The bids from a number of suppliers may be very similar, or all very close to the pricing model, suggesting possible collusion or price fixing.

• Benchmark prices to similar suppliers in other areas.

There may be one conspicuously strong bid among a number of weak bids, suggesting bid manipulation.

• Ensure there are clear channels for suppliers and contractors to raise concerns about possible bid manipulation. Make sure that concerns are listened to.

There may be a pattern of winning or losing bidders, or companies that don’t bid for certain contracts, suggesting collusion, bid rotation or bid manipulation.

• Maintain a centralised contracts register. Review and analyse the register on a periodic basis to identify/determine patterns.

There may be evidence of contact between a bidder and a staff member through unofficial channels, indicating the possible leaking of information, bribery or a conflict of interest.

• Establish an e-tendering platform and require its use for all communications. This will help to maintain an audit trail.
• Raise staff awareness of bribery and corruption risks through regular ethical procurement training sessions. Annual ethical procurement training should be mandatory for staff in procurement posts.

A staff member may have an undeclared conflict of interest.

• Ensure that conflicts of interest are declared and properly managed. Consider using data analytics to check supplier details against staff details (e.g. same address or bank account).

A staff member may want to rush the tender process or short-cut proper procedures (perhaps by altering bids or accepting late bids), indicating possible conflict of interest or collusion with a bidder, bid manipulation, or bribery and corruption.

• Ensure that staff are aware of their bribery risks and require them to adhere to a code of conduct or other statement of ethical behaviour.
• Ensure there are clear channels of communication for staff to raise concerns about potential conflicts of interest, collusion, bribery and corruption. Make sure that concerns are listened to.

A staff member may insist on dealing with a particular bidder, indicating possible collusion or bribery.

• Implement robust arrangements for segregation of duties and rotation of staff.

A tender opportunity may not have been properly and widely advertised, in order to restrict the number of bidders or favour one bidder.

• Establish clear arrangements for advertising tenders, and ensure they are adhered to in all cases.

Certain bidders may be given extensions, allowing them to submit tenders after the due date.

• Monitor any extensions to ensure they were properly authorised and given for justifiable reasons. Consider their impact on the final outcome of the process.

Tender evaluation criteria are not set in advance, or are changed from those set out in the tender documentation, to favour a particular bidder. This could indicate possible conflict of interest, bribery or corruption.

• Establish tender evaluation criteria at the pre-tender stage and include them in tender documentation, to promote transparency. Changes after that point should only be made to correct an obvious error in tender documentation.
• Ensure that no single person has responsibility for finalising the criteria.

In relation to the tender process:

• the tender scoring process may be altered to favour a particular bidder
• a bid may be disqualified for no apparent reason
• a bid may be manually altered after submission

all indicating possible conflict of interest, bribery or corruption.

• Ensure that all contract award panellists have had specific procurement fraud awareness training,and recognise the risks of bribery and corruption.
• Ensure that all panellists have declared any conflicts of interest in relation to the specific procurement exercise.
• Use an e-tendering platform to help prevent alteration of bids after submission.

The contract award panel:

• may be under-qualified or inexperienced
• may be unduly influenced by one panel member, or by someone outside the panel seeking to affect the outcome.

• Ensure that the contract award panel is of sufficient experience and seniority for the scale of the procurement.
• Have clear guidelines in place for the operation of panels, to help minimise the risk of undue influence.

There may be little or no documentation to support the award panel’s decision. This could be an effort to conceal possible conflict of interest, bribery or corruption.

• Ensure that standard documentation is used to record the panel decision, with appropriate supporting documentation.
• Use an e-tendering platform to facilitate proper recording of decisions.

There is evidence of one bidder winning multiple bids. This could indicate they have insider information as a result of conflict of interest, bribery or corruption.

• Maintain a centralised contracts register. Review and analyse the register on a periodic basis. Query any unusual or unexpected patterns in relation to particular bidders.

The contract may be awarded to an unexpected contractor, indicating possible conflict of interest, bribery or corruption.

• Ensure that standard documentation is used to record the panel decision, with appropriate supporting documentation.
• Ensure that all panellists have declared any conflicts of interest in relation to the specific procurement exercise.

An unsuccessful bidder may raise concerns about the bidding process/outcome.

• Ensure that appropriate debrief information is provided to unsuccessful suppliers/contractors.
• Ensure there are clear channels for suppliers and contractors to raise concerns about the tender process. Make sure that concerns are listened to and investigated appropriately.

A winning bidder may sub-contract work to a losing bidder, suggesting collusion between bidders at the tender stage.

• Monitor the use of sub-contractors to look for any patterns that might indicate collusion.

Unexplained additional works or services leading to additional contract costs may indicate bid manipulation, with submission of an intentionally low bid to win the contract, followed by requests for contract variations.

• Have clear procedures in place for contract variations, to ensure they are properly documented, justified and authorised.
• Challenge contractors/suppliers who seek variations to the contract post-award.

There are risks around invoicing for contracts/supplies:

• invoices for work not completed or supplies not delivered
• lack of supporting documentation or use of photocopies
• unexpected items invoiced
• duplicate invoices for the same supplies/services
• multiple invoices of a similar value, which could indicate splitting to avoid appropriate authorisation.

• Implement a “No purchase order, no pay” policy to ensure a full audit trail.
• Have effective arrangements in place for checking invoices before payment, including adequate supporting documentation and evidence that the specified supplies/services have been provided.
• Analyse expenditure to highlight unusual items.
• Use software for duplicates testing.
• Test for physical evidence of supplies/services.
• Analyse expenditure patterns across suppliers/contractors to help detect possible splitting of tenders into multiple smaller amounts to circumvent authorisation thresholds.

Evidence of a close relationship between a contractor/supplier and an employee could indicate bribery or gifts and hospitality, and could jeopardise contract management, e.g. ineffective contract monitoring.

• Ensure that contract managers are appropriately trained and aware of their bribery risks.
• Have a clear Gifts and Hospitality policy in place, and ensure that all staff are fully aware of its existence and contents and adhere to it.
• Managers should spot check/review contract monitoring reports.
• Ensure there are clear channels for staff to raise concerns about possible collusion, bribery and corruption. Make sure that concerns are listened to.

A high level of complaints from service recipients might indicate the use of sub-standard materials or unqualified workers on a contract, or the supply of inferior goods for the same contract price.

• Perform spot checks on quality of goods and services supplied, to ensure they are in line with the contract.
• Ensure contract management roles and responsibilities are well defined and include provision for site visits/inspections during the course of a contract.
• Have a clear line of communication for customer/service user complaints. Monitor the feedback and respond appropriately.

A contractor or supplier inquiring about a missing payment could indicate that the payment has been fraudulently diverted, either internally or externally.

• Verify supplier details on initial set-up.
• Close off any unused/dormant supplier accounts to prevent them being used to facilitate fraud.
• Requests for change of bank account details should not be processed automatically; there should be a clear and robust verification process for all staff to follow.
• Ensure adequate segregation of duties in the payment process.

Missing supplies or an unexpected delivery address could indicate a member of staff or contractor diverting goods for personal use.

• Always ensure approved delivery addresses are used.
• Monitor goods received notes for unexpected addresses.
• Maintain comprehensive inventory/asset records and monitor usage levels.
• Have a regular programme of physical asset checks/stock-takes.

Unexpected or unexplained delays could indicate a contractor manipulating the contract in order to claim extra costs.

• Monitor contract overruns in terms of both cost and time, and ensure there is clear justification for any variations.
• Ensure contract terms are invoked to secure service credits or recovery of costs due to supplier delays.

The aggregate spend to a contractor or supplier may exceed the threshold for tendering, yet no tender process has been completed, indicating splitting to avoid proper process or to favour a particular contractor/supplier.

• Monitor aggregate spend to individual contractors/suppliers to look for evidence of splitting to avoid tender thresholds.

Use of a business procurement/purchasing card may show an unusual expenditure pattern or unexpected items, indicating possible purchases made for personal use.

• Limit the number of procurement cards and users.
• Apply a maximum expenditure level and restrict categories of purchase on the card.
• Monitor procurement card expenditure to identify unusual or unexpected items or suppliers, or transactions at unusual times.

There may be signs of a close relationship between an employee and supplier, perhaps influenced by bribery or gifts and hospitality.

• Ensure staff are aware of their bribery risks and require them to adhere to a code of conduct or other statement of ethical behaviour.
• Have a clear Gifts and Hospitality policy in place, and ensure that all staff are fully aware of its existence and contents and adhere to it.

Supplier details, such as address or bank account, may be the same as a staff member, indicating a possible undeclared conflict of interest or a false supplier account used to divert funds.

• Ensure robust supplier/contractor verification procedures are in place and carry out periodic due diligence e.g. checks to Companies House.
• Consider matching payroll and creditors’ data to identify undeclared conflicts of interest.

Procurement records may show an unusual or unexpected delivery address, indicating possible diversion of supplies for personal use.

• Ensure that suppliers are aware of valid business delivery addresses and ask them to query any unexpected addresses.
• Monitor goods received notes for unexpected addresses.
• Maintain comprehensive inventory/asset records and monitor usage levels.

In relation to cash-based transactions:

• holding an unusually large cash balance increases the risk of misuse
• excessive or unexpected cash purchases may suggest circumventing normal procurement procedures and controls, possibly for fraudulent reasons.

• Limit the use of cash to the absolute minimum.
• If cash is necessary, hold only a moderate balance.
• Ensure clear rules are in place for the use of cash in relation to purchases.
• Analyse cash-based transactions regularly, to identify possible fraudulent use.

Do we have a zero tolerance policy towards procurement fraud?

Have we undertaken procurement fraud risk identification and assessment?

Are we vigilant for new procurement fraud risks and scams?

Do we require staff in procurement roles to have annual training in ethical procurement, including fraud awareness?

Do we have the right approach – and strategies, policies and plans – that are effective in countering procurement fraud?

Do we have a ‘no purchase order, no payment’ policy?

Do counter-fraud staff review the procurement activity of our organisation?

Do we report regularly on how well we are tackling procurement fraud risks?

Do we raise awareness of procurement fraud risks with new staff (including agency staff), existing staff, and our suppliers?

Do we work well with national, regional and local networks to ensure we know about current procurement fraud risks and issues?

Do we work well with other organisations to ensure we effectively share knowledge and data about fraud and fraudsters?

Do we identify areas where our internal controls are not working as well as intended? If so, do we take action quickly?

Have we reviewed our procurement procedures in line with best practice?

Do we have arrangements in place that encourage our staff to raise their concerns about money laundering?

Do we have effective arrangements for recording and reporting procurement fraud?

Do we have visible and effective arrangements in place for staff to raise concerns?

Are we confident that we have sufficient counter-fraud capacity and capability to prevent and detect procurement fraud?