How to fight procurement fraud in an age of austerity
CIPFA examines what can be done to stem the rise of procurement fraud
Cases of procurement fraud in the public sector increased fivefold over the 12 months to April this year, according to the Chartered Institute of Public Finance and Accountancy’s (CIPFA) latest Fraud and Corruption Tracker.
The survey found that during 2015-16 there were 353 reported cases of UK councils, health services and emergency services being cheated out of goods and services they were paying for – or being defrauded as part of a contractual relationship. The figure was up from 60 cases during the previous 12-months.
Procurement fraud takes place in a dynamic environment, with the sources and nature of the risks changing all the time. It is a fraud that takes many forms and may occurs anywhere along the supply chain, throughout the procurement cycle.
Bid rigging, for example, involves suppliers colluding to ensure a particular bidder wins the contract, e.g., by ensuring competitive bids will not be high enough to challenge the nominated bidder.
Similarly, contract specifications can be manipulated in favour of one particular bidder – this can result from inappropriate involvement in shaping the requirements during the preliminary market consultation.
Frauds such as “purchase-to-pay” systems – an umbrella term for a variety of ruses to extract payment for goods and services never received – are hard to put a price-tag on, not least because the cost of a fraud is rarely the same as that of a whole contract.
Nevertheless, CIPFA believes the known cases from 2015-16 can be extrapolated to more than 600 actual cases, with a value of £6.3m.
The fight against fraud, in whichever form it takes, requires that a robust strategy is in place, which is built around components such as deterrence and prevention, investigation and detection, and sanctions and redress.
Procurement fraud is no different, and when it comes to putting the strategy into practice, raising the profile of its existence among core staff is key, both during the tendering process itself and in the monitoring of the contract once it is being delivered.
One of the findings of the latest Fraud and Corruption Tracker is that the need for efficiency savings among public bodies in recent years has reduced the contract monitoring capacity among some public bodies.
After the capacity to identify risk and investigate allegations, respondents said their biggest concerns were involved in the management of contracts and barriers to data-sharing.
Joint working is a win-win situation
CIPFA believes some of the staffing issues faced by public bodies could be combatted by the development of joint-working arrangements to allow expertise to be pooled between peers in other authorities and dedicated counter-fraud organisations.
And tackling fraud in collaboration with other agencies can be more than just a cost saving exercise. Working across organisations and sharing expertise can lead to a far more holistic approach. The creation of multiple intelligence, data and investigative hubs opens up opportunities to link up with other local counter fraud agencies like NHS Local Counter Fraud Specialists. Local authorities, for example, might seek out opportunities to share resources, work across boundaries, share skills and spread learning and innovation on counter fraud and corruption to mitigate the consequences of cuts and other changes. There are also opportunities to work with national agencies like the Home Office and National Crime Agency.
For example, the Fraud and Corruption Tracker flagged a successful joint-working project between the Department for Work and Pensions, the London Borough of Tower Hamlets, the London Borough of Redbridge, and the Metropolitan Police. It targeted a large-scale Housing Benefit and Tax Credit fraud estimated at £1.6 million.
CIPFA said all organisations involved were able to benefit from shared investigation costs and pooled intelligence and a more comprehensive picture of the loss to the public purse, shaping the level of asset-recovery that could be sought.
However, in addition to prosecuting fraud, CIPFA points out that a robust system of regular fraud-risk assessments can help to stop losses before they happen.
One cause for relief is that the dramatic rise in procurement fraud is probably down to increasing investigation and a greater degree of data-sharing between organisations. Nevertheless, continued vigilance and an increasingly pro-active approach are vital.
For more details on the CIPFA Fraud and Corruption tracker, visit the CIPFA website. To discuss any queries with the team phone 0207 543 5600.