Guidance material

Procurement refers to the process of purchasing goods or services from external sources. It involves activities such as sourcing suppliers, negotiating contracts, and managing relationships with suppliers.

The goal of procurement is to source the required goods or services at the best possible value, while ensuring fairness, transparency, and accountability in the process. 

Corruption can occur in procurement when people misuse their authority or manipulate the procurement process for personal gain. Some common corrupt practices include bribery, bid rigging, favouritism, and collusion between suppliers and public officials. For example, an official might accept bribes from a supplier in exchange for awarding them a contract without the proper procurement processes being followed.

Fraud is when a person is intentionally deceptive or dishonest to gain a financial advantage or other benefit. It is a common form of corruption in procurement.

Fraudulent activities can cause financial losses and reputational damage to public sector organisations. It erodes public trust and confidence in government institutions and services.

Common examples of fraud in procurement include:

• theft of funds
• theft of equipment or inventory by employees
• false invoicing
• misappropriation of public funds
• financial reporting fraud.

There are several warning signs that may indicate the presence of corruption or fraud in procurement. These include:

• favouritism towards specific suppliers or contractors, without proper procurement processes being followed
• employees failing to declare conflicts of interest, or accepting gifts and benefits from suppliers
• non-compliance with established procurement procedures and documentation requirements
• lack of transparency in supplier selection and payment approval processes
• complaints from staff, suppliers or the community about biased bidding, lack of competition, or poor quality goods and services
• suspicious invoices, such as those with inflated prices or those for goods and services that were never delivered.

Being vigilant and recognising these warning signs is crucial for detecting and preventing corruption in procurement.

There’s a number of actions that organisations can take to reduce the risk of corruption in procurement. These include:

• have clear procurement policies and procedures in place
• promote and follow Victorian public sector standards
• provide regular training for employees on ethical procurement practices
• establish confidential reporting mechanisms for employees to report suspicions
• establish effective internal controls and separate duties in the procurement process
• monitor and evaluate procurement activities at random and regular intervals
• conduct thorough due diligence on suppliers before engagement
• promote competition and fairness in the bidding process.