Corruption in procurement - risks and warning signs

Employees may:

• write tender specifications in a way that favours a particular supplier
• frequently use exemptions to avoid competitive procurement
• frequently extend contracts
• accept late or suspicious bids
• not declare connections with a bidder (for example, a family member or friend) as well as actual or perceived conflicts of interest
• accept offers of gifts, benefits or hospitality
• release sensitive information (for example, tender specifications) to a particular bidder.

Suppliers may:

• submit suspicious bids (for example, fake companies, subsidiaries, shell companies or affiliates) to give the appearance of competition
• not declare connections with another bidder (same names, contact details)
• submit bids that vary significantly from others
• offer gifts, benefits or hospitality.

Employees may:

• choose a supplier whose bid was well above the expected cost
• repeatedly award contracts to the same suppliers
• not declare a conflict of interest in the tender/quote evaluation process
• favour a quick procurement over following proper process
• not maintain correct paperwork, including documenting decisions
• not submit the appropriate paperwork to support approval of a supplier
• undertake all duties alone (one person determines tender requirements, selects supplier, raises purchase order and approves payments).

Suppliers may:

• hire a losing bidder as a sub-contractor
• complain about the selection process or lack of competition.

Suspicious activity may include:

• employees raising purchase orders after receiving invoices, or not at all
• suppliers submitting false, inflated or duplicate invoices, or sloppy invoices with insufficient detail or obvious mistakes.

Corruption could be indicated by:

• not receiving goods and services
• receiving poor quality goods and services
• receiving community or staff complaints about the quality of goods and services.

Corruption could be indicated by:

• splitting contracts to avoid the need for a certain number of quotes or a tender process, or keeping purchases within a particular financial delegation
• varying contracts – for example, expanding projects so they go well above expenditure thresholds.

How robust are your organisation’s anti-corruption measures? Here’s a checklist of actions to prevent and identify suspected corruption.

Audits and checks

• Conduct regular and random audits to look for trends and patterns
• Conduct sample audits to check the accuracy of invoices and whether goods and services have been delivered
• Check the quality of goods and services
• Check invoices against prices in the contract
• Audit employee access to sensitive tender information.
   

Conflicts of interest

• Establish a framework for employees to manage conflicts of interest – including declaring and reviewing any conflicts at each stage of the procurement process
• Rotate employees in high-risk positions
• Segregate duties throughout the procurement process – for example, have different people approve and receive goods and services.
   

Processes and controls

• Conduct due diligence to establish the legitimacy of suppliers (for example, check details on tenders and quotes, conduct ASIC searches to identify any links between prospective suppliers and employees or whether entities have appropriate assets or business facilities)
• Check financial delegate paperwork is complete before approving expenditure
• Control sub-contracting processes
• Monitor tenders and contracts to detect contract splitting
• Require staff to sign invoices verifying that goods and services have been received
• Ensure payment system controls exist to detect duplicate invoices
• Maintain robust contract management and oversight to enforce terms, milestones and deliverables
• Monitor variations in contracts and project scope after approval.
   

Staff training

• Conduct regular training and staff development
• Ensure staff involved in procurement understand ‘total cost of ownership’.
   

Complaint management

• Encourage reporting of suspicious activities among staff and suppliers
• Investigate staff, community or business complaints thoroughly and consider looking for other suspicious activities.

• Visit the Victorian Government Purchasing Board website
• Visit HealthShare Victoria for purchasing guidance for health related goods and services

Local Government Victoria

• Procurement Best Practice Guidelines

Victorian Auditor-General's Office

• Effectiveness of Support for Local Government
• Fraud Prevention Strategies in Local Government
• Public Sector Procurement: Turning Principles into Practice

Victorian Public Sector Commission

• Gifts, Benefits and Hospitality Policy Framework
• Conflict of interest guidance for organisations