A recent investigative report published by the Organized Crime and Corruption Reporting Project (OCCRP) examining fraud and corruption in Kenya's procurement process highlighted some important lessons for public and private sector procurement activities. The report discussed a number of procurement fraud indicators that are applicable not just in Kenya but globally and are equally relevant to both Government and private sector companies.
For example, the report which was based on the analysis of procurement data from a 4 year period pointed out that over 1000 transactions were paid out after business hours and over 500 were paid out over weekends. It reported that transaction volumes would spike on the last Sunday of each financial year and a number of undeclared conflicts of interests were subsequently identified suggesting that adequate due diligence had not been performed.
Controls to prevent and detect procurement fraud are often weak so aggregate losses can become significant by the time they are detected. For companies looking to strengthen their defences against procurement fraud, there are a number of basic steps that can be taken.
These include but are not limited to:
- Ensuring that your company has a robust code of conduct that sets out expectations around the mandatory declaration of potential conflicts of interests. The code of conduct should go hand in hand with, and be aligned to the anti-bribery policy and controls of the company
- Conducting adequate due diligence to identify any potential conflicts of interests and other supplier related risks (see here for further information on other potential supply chain risks)
- Analysing the procurement data available within your company and preparing a suite of reports to highlight potential areas of concern. For example, in the OCCRP report, some basic analysis focused on the actual times that transactions were approved and payments made, and factoring in those individuals involved, may have enabled a pattern of potentially fraudulent transactions to be detected. Additionally, having a procurement fraud analytics solution in place can act as a deterrent to would-be fraudsters.
- Ensuring your company has a whistleblowing mechanism which allows employees to anonymously report concerns about unethical or illegal behaviours
- Developing a set of red flag indicators for procurement frauds that are common in, and relevant to your industry. For example, if your industry is susceptible to collusion amongst bidding parties, red flags could include
- Bidding appears to be coordinated, uses round number increments or appears to irrationally start at a higher or lower level than would be expected
- There appears to be a rotational pattern amongst winning bidders so that work is shared between rival bidders over the course of a given period
- Winning contractors subcontract work to losing bidders
- There are potential connections between bidding parties (again emphasizing the importance of thorough 3rd party due diligence)
- Another example of red flags could be focused around concerns that bidders have access to inside information or are bribing employees to provide confidential information. Red flags could include
- An employee that has access to privileged bid related information appears to be living a lifestyle that is inconsistent with their salary level
- The winning bid is one of the final bids and just fractionally below the price point of the second lowest bidder
- The winning bidder had asked for an extension to the deadline
- Internal access to bid related information is not tightly controlled
If you would like some help in this area, please contact Neal Ysart, Lead Regulatory & Investigations Advisor at firstname.lastname@example.org / Tel: +971 55 138 9250 or your usual Clyde & Co point of contact.
.....analysis of the leaked data also revealed problematic patterns, like people accessing the system outside of working hours, as well as hundreds of duplicate transactions.