Key Fraud Risks across Procurement Phases (Courtesy of the UN)

Posted by Andrew Bartolini on September 23rd, 2016
Stored in Articles, General, People, Process, Strategy

[Editor’s Note: With 140 heads of state in New York City this week attending the annual United Nations General Assembly, and with us being on a procurement fraud kick lately, we thought it was appropriate to revisit the topic of how the UN addresses procurement fraud in today’s edition of CPO Rising. Enjoy!]

In doing research on how different organizations attack procurement fraud, I became very impressed by the level of detail included in the United Nations’ policies. In particular, I think the United Nations does a great job laying out a list of key risks that are exposed across the different procurement phases. So in the spirit of the Olympics and global harmony, we will present them for you here, verbatim:

The UN’s Key Procurement Fraud Risks Across Procurement Phases

A. Procurement Planning/Budgeting

  • Inadequate analysis of the supply market, organizational requirements and stakeholder needs and issues
  • No planning undertaken, thus no risks assessed
  • Needs falsely inflated or stated in a manner that permits low quality goods/services to pass
  • Requirements prepared in a manner that favors or disfavors particular suppliers
  • Poorly substantiated “justification” for “waivers”
  • Budgets set artificially high to cover kick-backs

B. Procurement Selection Process

  • Using inappropriate procurement methods with the aim of finding ways to subvert the decision-making processes.
  • Evaluation criteria designed to favor a particular supplier or disqualify others
  • Information shared to favor a particular supplier
  • Restricting tender pool of potential suppliers or creating shortlists of “weak” suppliers against a favored supplier
  • Mishandling tender documents
  • Accepting late bids/proposals
  • Rejecting legitimate bids
  • Inappropriately evaluating a supplier
  • Mishandling bids received
  • Documents submitted by bidders are fraudulent but not detected

C. Contract Award and Management (Performance)

  • Splitting procurement actions to stay below the threshold for procurement review
  • Unrealistically low bid with expectation to later amend the contract
  • Unrealistically high caliber goods/experts later replaced by inferior ones
  • Corrupt subcontractors
  • Contract is different from bid/proposal in terms of specifications, quantities, level of effort, delivery schedule and payment terms
  • Oversight and reporting requirements minimized in contract to avoid scrutiny
  • Inadequate personnel for oversight
  • Acceptance of cost overruns
  • Manipulation and destruction of supporting documentation
  • Splitting contracts/purchase orders to avoid scrutiny
  • Unjustified contract extension or amendment

For further consideration, Chief Procurement Officers who do not have formal policies in place should get started by reviewing our lengthy robust series on procurement fraud and also download the UN Policy on Fraud and other Corrupt Practices.


Throwback Thursday: Procurement Fraud Prevention – Two More Strategies

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Throwback Thursday: Procurement Fraud Prevention – The Expert (Part 1)

Throwback Thursday: Procurement Fraud Prevention (3) – Why It’s Important

Fraud Prevention (2) – CPO Strategies

Throwback Thursday: Fraud Prevention (1) – Avoiding the Bad Apples

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