Corruption in procurement - risks and warning signs

Employees

• Writing tender specifications in a way that favours a particular supplier
• Frequently using exemptions to circumvent competitive procurement
• Frequently extending contracts
• Accepting late or suspicious bids
• Not declaring connections with bidder (eg family member or friend), as well as actual or perceived conflicts of interest
• Accepting offers of gifts, benefits or hospitality
• Releasing sensitive information (eg tender specifications) to a particular bidder

Suppliers

• Submitting suspicious bids (eg fake companies, subsidiaries, shell companies or affiliates) to give the appearance of competition
• Not declaring connections with another bidder (eg same names, contact details)
• Submitting bids that vary significantly from others
• Offering gifts, benefits or hospitality

Employees

• Selecting a supplier who bid well above the expected cost
• Repeatedly awarding contracts to the same suppliers
• Not declaring a conflict of interest in tender/quote evaluation process
• Favouring getting procurement done quickly over following proper process
• Not maintaining appropriate paperwork, including documentation of decisions
• Not submitting the appropriate paperwork to support approval of supplier
• Undertaking all duties by themselves (ie one person determines tender requirements, selects supplier, raises purchase order and approves payments)

Suppliers

• Hiring a losing bidder as sub-contractors
• Complaining about selection process or lack of competition

• Employees raising purchase orders after invoices have been received, or not at all
• Suppliers submitting false, inflated or duplicate invoices, or sloppy invoices with insufficient detail or obvious mistakes

• Not receiving goods and services
• Receiving poor quality goods and services
• Receiving community/staff complaints about the quality of goods and services

• Splitting contracts to avoid the need for a certain number of quotes or a tender process, or to keep purchases within a particular financial delegation
• Varying contracts, eg expanding projects to go well above expenditure thresholds

Audits and checks

• Conducting regular and random audits to look for trends and patterns
• Conducting sample audits to check veracity of invoices, and whether goods and services have been delivered
• Checking quality of goods and services
• Checking invoices against prices in the contract
• Auditing employee access to sensitive tender information

Conflicts of interest

• Establishing framework for employees to manage conflicts of interest, including declaring then reviewing identified conflicts at each relevant stage of the procurement process
• Rotating employees in high-risk positions
• Segregating duties at various stages of the procurement process – eg use different people to approve and receive goods/services

Processes and controls

• Conducting due diligence to establish legitimacy of suppliers (eg checking details on tenders and quotes, conducting ASIC searches to identify possible links between prospective suppliers and employees, or whether entities have appropriate assets or business facilities)
• Checking financial delegate paperwork is complete before approving expenditure
• Controlling sub-contracting processes
• Monitoring tenders and contracts to detect contract splitting
• Requiring staff to sign invoices to verify goods and services have been received
• Ensuring controls exist in payment systems to detect duplicate invoices
• Maintaining robust contract management and oversight to enforce contractual terms, milestones and deliverables
• Monitoring variations in contracts and project scope after approval

Staff training

• Conducting regular training and staff development
• Ensuring staff involved in the procurement process are familiar with the concept of total cost of ownership

Complaint management

• Encouraging reporting of suspicious activities among staff and suppliers
• Investigating staff and community/business complaints appropriately and expanding investigations to look for other suspicious activities

• Visit the Victorian Government Purchasing Board website
• Visit the Health Purchasing Victoria website

Local Government Victoria

• Best Practice Procurement 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

• Integrity in Engaging Contractors Guidance Note 
• Gifts, Benefits and Hospitality Policy Framework
• Managing conflicts of interest: a guide to policy development and implementation