Updated: Jul 31, 2020
Why don't government, public sector and private sector projects introduce anti-fraud and corruption risk assessments within projects?
Once you map out the four key areas of procurement fraud risk an organisation will have a strong starting point in understanding the level of procurement fraud it faces and an opportunity to design a framework to mitigate its risk.
A starting point in understanding and assessing organisation risk is to recognise the breadth of procurement fraud, its typologies and the methods in which they can be committed. The British Standard BS10501: Guide to Implementing Procurement Fraud Controls outlines the scope of fraud that included the insider threat, the external threat and the collusion between supplier and employee.
The breadth of typologies are substantial, however in many of the typologies there are a number of other methods in which fraud can be committed. As an example false invoicing would also include inflated or fictitious claims and mischarging so the risks within the billing process can be more significant particularly where the methods of fraud are not understood.
Once we understand the various typologies the second step is to look at the procurement lifecycle and how it can be affected, when we look at the pre award and post award stages of procurement there are many areas that can be impacted by procurement fraud:
The pre award stages can include identification of need and justification, design and specification, budget, route of procurement, vendor identification and prequalification, bid response, tender matrix and selection
The post award areas of risk within contract management can include adhoc and emergency works, variations and change orders, contract and project management, work sign off and asset management
When we consider the various typologies of fraud and the stages and areas of the procurement lifecycle we start to get a picture of the potential for fraud and whether our controls are adequate.
FRAUD RISK WITHIN PROJECTS
In a large percentage of cases project costs bear no resemblance to the original contract values. If fraud risk isn't considered at the planning stage how do we determine how much of the increased costs is due to fraud and corruption.
One of the key issues within projects is that in the majority of cases there is no risk assessment for procurement fraud and as such invariably no consideration is made for fraud controls and procurement fraud risk mitigation. An assessment of fraud at best is conducted through an audit at the end of a project where a large percentage of the fraud and corruption is hidden and so is never discovered. It is one of the reasons why the value of fraud can be significant and that it has been highlighted in cases globally that projects at the beginning have been designed to fail so that monies can be illicitly diverted.
Additional areas of procurement fraud are committed through manipulation and billing for areas such as time, quality and resources that ultimately affect price and the additional profit for the contractor. Due to the scale of procurement, limited controls and the significant values involved, projects become very attractive for fraud and the illicit diversion of funds.
INFLUENCE OF PROCUREMENT AND PROJECT PROCESSES
The final area for consideration in understanding the level of risk is people and their influence on the procurement and project processes, both the insider and external threat. In assessing decision making, project management, change management and back office roles from decision making, sign off and positions of influence, from the point of initial identification of need and project design, the significant levels of asset management through to the completion of a project there are a significant number of areas where procurement fraud can occur.
Only when we recognise roles within each stage of procurement and projects and the opportunity or potential for fraud, can we design how we are going to protect organisation revenues and the integrity of the procurement process.
So when we now consider the typologies, procurement lifecycle, project management and individuals that can influence procurement and project processes there is the potential for hundreds of areas of risk. Now that we have briefly considered these four key areas we get to understand the potential for significant financial loss and the importance of a fraud risk assessment at the planning stage of a project.
So why do government, public sector and private sector projects not introduce anti-fraud risk assessment within projects?