doc procurement anti fraud and anti-corruption

PROCUREMENT ANTI-CORRUPTION & ANTI-FRAUD TRAINING

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Prepared and Presented byMyron. D. B. BetshangerIndependent Procurement Consultant

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Why Importance of Procurement Anti-Corruption & Anti-Fraud ?

Why Importance of Procurement Anti-Corruption & Anti-Fraud ?

REPORTED INCREASES OF CORRUPTION & FRAUD AMONG S.A. BUSINESSES

- Asset misappropriation 77% (69% *)

- Procurement fraud 59% (29%*)

- Bribery and corruption 52% (27%*)

- Human resources fraud 42% (15%*)

- Cybercrime 26% (24%*)

- Money-laundering 14% (11%*)

- Tax fraud 11% (6%*)

- Illegal insider trading 9% (5%*)

*Indicates Global Averages.

Data provided by PwC – Global Economic Crime Survey 2014 available at http://www.pwc.com/gx/en/economic-crime-survey/downloads.jhtml

THE OBJECTIVES / OUTCOMES OF THIS TRAINING COURSE / WORKSHOP

WE WILL DISCUSS AND TREAT –

What Procurement Corruption and Fraud Looks Like in The Business Environment.

Which Phases of The Procurement Cycle Is Procurement Fraud / Corruption Likely to Occur.

How to Identify The Risks of Procurement Fraud and Corruption.

What are the “RED FLAGS” of Procurement Fraud.

What are the “Best Practices” in Procurement Anti-Corruption and Anti-Fraud Controls.

How to Develop and Implement an Effective Counter Procurement Corruption and Fraud Strategy.

Why Does Procurement Corruption/Fraud Occur?

Why Does Procurement Corruption/Fraud Occur? Procurement Systems Overrides or Control Failures.

Traditional Fraud / Corruption Controls Do Not Cover Procurement Corruption / Fraud.

Lack of Segregation of Duties.

Lack of Proper Application of Procure-to-Pay Controls.

Inconsistent Application of 3 –Way Match Approach.

Delegated Procurement Authority Overridden / Undue Interference In Procurement.

Frequent Bypassing of Procurement Process and Procedures by End-Users.

Extraordinary Splitting of Orders.

Unauthorized Inputs Into Vendor / Supplier Master Data.

Why Does Procurement Corruption/Fraud Occur? Frequent Bypassing of Procurement Process and Procedures by End-Users.

Extraordinary Splitting of Orders.

Unauthorized Inputs Into Vendor / Supplier Master Data.

Adding/Deleting of Supplier Details Without Proper Authorization.

Overriding of Financial Controls.

Social Engineering.

PHASES IN PROCUREMENT CYCLE WHERE CORRUPTION / FRAUD MAY OCCURE

PLANNING BIDDING PHASE EVALUATION CONTRACT MGT

PROCUREMENT PLAN

ADVERTISEMENT

BIDDING DOCUMENTS

SHORT-LISTING (PRE-QUALIFICATION)

PRE-BID CONFERENCE

BID SUBMISSIONS

BID/TENDER OPENING

EVALUATION COMMITTEE

EVALUATION REPORT

TENDER (AWARD) COMMITTEE

CONTRACT DRAFTING

CONTRACT DELIVERY /EXECUTION

CONTRACT CHANGES / VARIATIONS

TYPES OF PROCUREMENT CORRUPTION & FRAUD PRACTICES

• Bid Manipulation

• Bid Rigging

• Rigged Specifications

• Bid Rotation

• Bid Suppression

• Bribery

• Cartels

• Market Sharing

• Complementary (Cover) Bidding

• Price Fixing

• Product Substitution

• Purchases for Personal / Resale

• Split Purchasing

• Unjustified Sole Sourcing

• Fictitious Vendors / Suppliers

• Ghost / Shell Companies

TYPES OF PROCUREMENT CORRUPTION & FRAUD PRACTICES

• Abuse of contract variations

• Manipulation of Deliveries

• False Invoicing

• Inappropriate Bundling

• Unnecessary or Inappropriate Line Items

• Restricted Bid Solicitation Circulation

• Biased Evaluation Criteria

• Unbalanced Bidding

• Leakage of Insider / Confidential Information

• Exclusion of Qualifying Bidders

• Bid Tempering

• Inappropriate Contractual Terms

• Acceptance of Late Bids

• Hidden / Undeclared Interest in Bidding Company.

SESSION 1 - Procurement Fraud Typologies

PROCUREMENT CORRUPTION /FRAUD TYPOLOGIES

1. BRIBERY & CORRUPTION - involves an offer, promise or payment, including the request or receipt of pecuniary and non- pecuniary advantage – purpose of influencing procurement process OR allow illicit overcharging, false invoicing, product substitution, or acceptance of sub-standard goods/materials/works/services within contract or during contract execution.

“RED FLAGS” - Procurement staff, Senior Managers, Non-Procurement Functionaries attempting to “Force through” as supplier/contractor or purchase order despite objections.

- Non-procurement staff chasing / “expediting” an order consistently.

- Supplier(s) seems to be ordering work/services – Procurement staff place ex post facto orders.

- Existence of too cosy, less than “arms length” relationship between supplier and critical decision-makers in procurement process.

- Supplier control of meetings between Supplier and procurement functionary.


“RED FLAGS” …. - Procurement staff, Senior Line Managers, Non-Procurement Functionaries appears to be living beyond means of income.

- Purchase Orders (POs) to particular Supplier(s) frequently processed outside normal business / working hours without justifiable reasons.

- Supplier(s) in possession of inside and confidential information it/they should not have, e.g. budget estimates.

- Supplier chase Purchase Orders by making consistent inquiries.

- Excessive gifts and hospitality provided by Supplier(s) to certain procurement personnel members.

- Seeming reluctance on part of certain procurement staff members to take leave.

- Frequent and deliberate circumvention of procurement process by staff.


2. MANIPULATION OF SPECIFICATIONS * Specifications in Bid Solicitation Documents Drafted By a Particular Supplier.

* Specifying use of particular “Brand Name” when not required / Items widely available in market.

* Specifications are too broad or too narrow.

* Specific components / parts / services can only be maintained by select group of individuals.

“RED FLAGS”

- Specifications of winning Bidder / Supplier similar / same as the organization’s requirements.

- Tender Paperwork appears too perfect.

- Fewer that expected Bidders respond to Tender Invitation.

- Higher that usual number of non-responsive tender submission / No Bid Returns from Market.


3. BID RIGGING Examples of Bid Rigging include: (a) Bid Suppression (b) Cover Bidding (c) Bid Rotation (d) Collusive Markets (e) Price Fixing

“RED FLAGS” - Same company always winning bidder i.r.o. particular tender – even more suspicious when certain companies continually submit unsuccessful / non-responsive tenders.

- Same suppliers submit bids, each company seems to take turns submitting “winning” bid.

- Fewer then usual / expected number of competitors submit bids.


“ RED FLAGS” … - Company / Companies appear to bidding substantially higher on some tenders than others without any apparent cost differences.

- Unexpected / Unusual Drop in Bid Pricing whenever New of Infrequent Bidder Enters Market.

- Same sub-contractor are listed on multiple bids.

- Similar (spelling) mistakes, Financial Formulas, or unusual phrases used in tender documents submitted by different and apparently competing bidders.

- Bids are awarded to unqualified contractors who were unlikely to be successful.

- Apparently qualified companies decline to submit bids or withdraw bids previously submitted without legal or justifiable reasons.


4. GHOST / SHELL COMPANIES - Set up / used to bid for tenders.

- Concealment of true owners / beneficiaries.

- Hide/Conceal Conflict of Interest.

“RED FLAGS”

- Company name is similar to well-known company/supplier.

- Company Organogram not provided or incomplete ( lacks material information).

- Company Website created to support appearance of legitimacy.

- Company cannot readily provide all legal documentation, certificates, commercial documents, etc.

- Company request payments in foreign currency and/or into offshore banking account into apparent tax haven.


“RED FLAGS” …. - Goods / Services / Works either not delivered or provided OR only partially delivered/completed.

- Company only provided Website/ E-mailing/Postal Address and Mobile Contact Numbers.

- Company situated in residential area.

- Company has no apparent clientele other than procuring organization.

- Company has very little to no apparent assets.

- Company’s financial statements and audit reports appear incomplete.

- No apparent commercial activities.


5. UNJUSTIFIED SOLE / SINGLE SOURCING - Where contract is awarded to particular supplier source where it could have been awarded to any of a number of other contractors /suppliers OR where the particular supplier has been awarded multiple single source packages in the past.

“ RED FLEGS” - Product / Service has not been previously sole sourced.

- No “Sole Source Justification Form” has been completed and authorized.

- Supplier previously provided goods/works/services, but at a cheaper price. Absence of justification for price increases.

- No documentary evidence to prove goods/works/services has been delivered/carried out.

- Evidence of gifts or hospitality received from particular supplier at frequent/regular intervals.


6. OVER-CHARGING - Often occurs as a result from a lack of proper oversight and Supplier/Contractor Performance Management (SPM) and/or Supplier Relationship Management (SRM) and Financial Controls.

“RED FLAGS” - Contractor Management Staff evasive & unable to readily produce records and documents on request.

- Timesheets submitted by contractor are illegible and/or incomplete.

- Some timesheets are missing. - Timesheets contains one signature signing off on multiple staff attendance or controlled by single person. - Invoices for services are vague, e.g. consultant working for 10 hours off-site on project.


“RED FLAGS” … - Electronic access controls & CCTV to record access to particular site appear to fail or are damaged on regular basis.

- Inability of procuring entity to identify certain workers on submitted timesheets – possible “ghost workers” i.e. they don’t exist and have been added so extra charging can take place.

- Volume of purchases do not appear to have discounts applied where such discounts were agreed upon and which have historically been given.


7. FALSE CLAIMS - Are often present as a result of a corrupt agreement between organization insider and a supplier in terms of which the supplier is allowed to submit claims for goods/works/services either not delivered/completed at all or only partially delivered/completed.

“RED FLAGS” … - Invoice does not match Purchase Order (PO) and the Purchase Requisition (PR).

- Purchase Order does not correlate with an existing contract or is linked to older or inactive contract. - Items being charged for not appearing on asset register.

- Invoices do not appear to follow the format that would normally be expected.

- Absence of delivery note to evidence that the delivery took place.

- No evidence to prove work was carried out, i.e. absence of certificates of completion.


8. AD-HOC / EMERGENCY ORDERS * Ad-hoc works are works that are not planned and budgeted for and facilitated as either a change order or through contract variations.

* Emergency works are works that are required on an emergency basis – by very definition not works required on a regular basis.

“RED FLAGS” - Last minute changes to specifications. Close link to “Manipulation of Specifications”.

- Non-contractual “Scope encroachment”.

- Deliberate creation of “emergency” in order to circumvent normal procurement processes.

- A sub-standard product may have been substituted to replace a genuine specified product.

- Product is not “fit-for-purpose”.

The Phases in Typical Procurement Cycle Susceptible to Corruption/Fraud

To Recap…

SESSION 2 – Procurement Corruption/Fraud Typologies


PROCUREMENT PLAN

ADVERTISEMENT

BIDDING DOCUMENTS

Corruption/Fraud Typologies In Procurement Planning

PLANNING

PROCUREMENT PLANScheme: Unnecessary Items Items included in specifications of contracts for goods/services/works which is not consistent with contract requirements.

Scheme: Unjustified Sole Sourcing / Direct Purchasing * The SOW (Scope of Work) expanded significantly after tender and contract award taking contractual value from just below a set threshold to considerably above threshold for competitive bidding.

* Unreasonably low Quality Specifications to allow an otherwise non-qualifying favoured bidder to qualify and be awarded the tender and subsequent tender.

* Multiple sole source / direct contracting to same company where certain contract amendments would have benefitted from competition or where the items should have been procured separately.

Scheme: Contract Splitting * Is the deliberate attempt to limit or entirely avoid competitive tender processes. By splitting contracts into smaller packages the need for a greater degree of review and less competitive procurement methods are made possible.

* Unusual Splitting: Issuing two or more contracts for identical items over short period of time for no apparent reasons and which result in the application of less competitive procurement method.

* Multiple Contract Award Just Below Threshold: Awarding an unreasonably large number of contracts just below procurement review thresholds by senior managers.

* Excessive Shopping: Using shopping excessively for the purchase of identical/similar items. Two or more related and simultaneous purchases from same supplier in amounts just below the legal procurement threshold.


PROCUREMENT PLAN

Scheme: Inappropriate Bundling * Opposite of “Contract Splitting” – The tender bundles a wide variety of goods/works/services that have no relation with each other into one lot, e.g. building materials clustered with copper wires, computer equipment/software and CCTV equipment, with a particular provision that incomplete lots are not allowed and would be regarded as non-responsive. * Typically the contract is awarded to a favoured bidder at a price well above estimates.

“RED FLAGS” - Complaints from one or more potential bidders about the bundling of goods/works/services.

- Items to be procured within a proposed bundle completely unrelated.

- Proposed bundling cannot be properly justified on basis of cost savings or reduced integration costs or risks.


PROCUREMENT PLAN

Scheme: Restricted Circulation of Tender - Not advertising the request for expression of interest as required by company procurement policy – limited circulation by posting advertisement in local news media in circumstances where advertising in more broadly would have resulted in improve competition and better pricing. Purpose to give unfair advantage to favoured local supplier.Scheme: Short Notice - The period between the advertisement and bid submission deadline is very short – purpose – to place a favoured Supplier who had been given “insider” information in an unfair advantage and to eliminate competitors so that such favoured supplier be the only one submitting a responsive bid. Scheme: Inadequate Information - Provisioning of inadequate information – potential bidders do not know for example where to submit bids or from whom to request clarification. - Drafting overly vague description of works/goods/services required-potential bidders cannot determine their interest.


PLANNING

TENDER ADVERTISEMENT

Scheme: Unnecessary / Inappropriate Line Items - In order to “pad” the contract, corrupt official may add unnecessary items that can be omitted later without reducing contract amount and facilitate the payment of the bribe.

“RED FLAGS” * Specific line items in BOQ not required to carry out the work – may have separate

utility for officials or serve to facilitate the bribe. * Items creating conflicts of interest for example – provisions in contract requiring the contractor to pay for government officials and supervisor consultants in the works contract.


PLANNING BIDDING DOCUMENTS

Scheme: Rigged Specifications - In competitive market – specifications drafted that seem to favour a particular company. - Unduly vague or broad specifications which allow an non-qualifying bidder to compete or to justify fraudulent change order requests after contract has been awarded. - Specific favoured company is allowed to draft the specifications.

“RED FLAGS” 1. Tailored Specifications: Close similarity between the specifications and the winning bidder’s product/service. Specifications stipulate use of a brand name without stating “or equivalent” contrary to procurement policy. 2. Poor Specifications: Vague, ambiguous or incomplete specifications Specifications are significantly narrower/broader than those used in previous similar procurement actions. 3. Fewer Bids: Only few companies responds to bid solicitation/invitations. Relatively few companies submits bids compared to previous similar procurement actions.


PLANNING BIDDING DOCUMENTS

Scheme: Manipulation of Bid Evaluation Criteria - Instituting biased evaluation and qualification criteria another method used to steer contracts to favoured bidder.

Scheme: Unbalanced Bidding - Under this scheme a favoured bidder is provided with “inside information” not available to other bidders, for example budget estimates or that specific line items will not be called for after the contract has been awarded or that a certain low- cost solution will be acceptable. The “inside information” will invariably give the favoured bidder an unfair advantage over other bidders by allowing it to lower is pricing or otherwise tailor its bid to defeat its uninformed competitors.

Scheme: Leakage of Confidential Information - same as above.

Corruption/Fraud Typologies In Procurement Planning PLANNING

BIDDING DOCUMENTS

END OF SESSION 2.

Corruption/Fraud Typologies In Procurement Planning PLANNING

SESSION 3 – Procurement Corruption/Fraud Typologies The Phases in Typical Procurement Cycle Susceptible to Corruption/Fraud



PRE-BID CONFERENCE

BID SUBMISSIONS

BID/TENDER OPENING


BIDDING PHASE

SHORT-LISTING (PRE-QUALIFICATION)-The short-listing and pre-qualification process can be used to exclude competitive bidders.

- Exclusion of otherwise qualified bidders through the pre-qualification process could ensure that only preferred /favoured bidder in whose bid a corrupt procurement functionary may have hidden interest will submit a bid that fulfils all the requirements.

-Where pre-qualification is required, prior review by senior management should be mandatory for all documentation and proposals related to the pre-qualification process.

“RED FLAGS” * Questionable Evaluation Criteria: - Unusual or unreasonable evaluation criteria.

- One or more short-listed companies do not have the appropriate qualifications for the assignment.

- Unreasonable pre-qualification requirements.

- Short-listed firms do not have similar qualifications or there is a wide and diverging gap in qualifications.

- Highly qualifying firms which expressed interests are not short-listed.

“RED FLAGS” * Hidden Interest In Bidding Company:

- Company only has Postal Box / E-mail Address and Mobile Phone Numbers.

- Complaints that procurement functionary owns or is otherwise linked to a bidding company.

- Procurement official linked to contractor/bidder through company registration information / family relations or reports in market place.

- Bidding company is not listed on Internet or business/telephone directories.

- The Contractor/Bidder’s business address situated in residential and non-business area.

- The Bidder provides a wide variety of disparate goods and services at high prices.

Corruption/Fraud Typologies In Procurement Planning BIDDING PHASE


Scheme: Exclusion of Qualified Bidders: - Procurement functionary / company officers can facilitate selection of favoured bidder by improperly excluding other qualified bidders. This may take place at any time from the drafting of the bidding documents to the receipt of bids. - Exclusion of qualified bidders often trigger complaints as potential bidders spend time and money preparing bids.

“RED FLAGS” * Unreasonable Pre- and Post-Qualification Criteria - e.g. abnormally high annual turnover or liquidity reserve requirements, years experience in industry or country.

* The Bid Evaluation Report (BER) provides no objective or poorly justified reasons for the rejection of certain bids – e.g. rejection on basis of trivial or arbitrary reasons.

* Otherwise qualifying bidders fails to submit bids indicating bidding may have been rigged.

* Company complaints about refusal/reluctance of procurement official(s) to make bidding documents available to potential bidders or to accept the submission of bids.



Pre-Bid Conference - often scheduled during bidding period to clarify any ambiguities/discrepancies in tender documents and to give potential bidders information on bidding process.

- can be used to facilitate unbalanced bidding.

“RED FLAGS”

- TIMING: Pre-bid conference scheduled too close to bid submission deadline.

Pre-bid conference may yield changes to specifications without changes to bid submission deadline.

Pre-bid conference may be used to introduce new specifications not previously included in tender solicitation documents and if held too close to bid submission deadline may be used to exclude competitors of a favoured bidder who had been provided with insider information.


BIDDING PHASE PRE-BID CONFERENCE / CLARIFICATIONS MEETING

“RED FLAGS” …

- Inadequate Information: Questions raised by potential bidders during clarification meetings are deliberately not addressed or there is a material delay in responses.

- Answers to bidder questions during clarification provided in biased and discriminatory manner in favour of a preferred bidder.

- Inadequate Transparency: Clarification and modifications to the bidding documents resulting from the pre-bid conference are not shared with all the prospective bidders.


PRE-BID CONFERENCE / CLARIFICATIONS MEETING

A variety of illicit activities may occur during the Bid Submission Phase.

“ RED FLAGS” * Late Submissions: - Corrupt procurement functionary may accept late bid from favoured bidder. - Not all bids are brought to bid opening ceremony (i.e. public bid opening). - One or more bids lack a time and date stamp.

* Bid Tampering: - A bid (of favoured bidder) not in a sealed envelope. - Received bids not kept in secure location with access limitations.

* Bid Manipulation: - Bid submission deadline extended after some bids has already been received. - All bids are voided for “errors”.

* Bid Exclusions: - Complaints from potential bidders that they were not allowed to submit bids. - The bid of a favoured bidder not among submitted bids during bid opening having been “forgotten” in the safe.


BIDDING PHASE BID SUBMISSIONS

“RED FLAGS”

- A key risk factor in the bid opening phase is the manipulation of bid prices.

* Submission: - Bids are not opened in public.

* Tampering: - Original bid form and price schedule or BOQ of all bids not signed by all member of the bid opening committee. - Pages are missing from one or more bids. - Pages with a different type set are included in the bid.

* Price Manipulation: - Changes to bid prices and bid security are handwritten. - The applicable currency is not stated in bidding documents.

* Undue Influence: - Members of Bid Evaluation Committee (BEC) are present and participating in bid opening. - Lack of original signatures of company representatives supposedly present at the bid opening ceremony.


BIDDING PHASE BID/TENDER OPENING


END OF SESSION 3.

SESSION 4 – Procurement Corruption/Fraud Typologies The Phases in Typical Procurement Cycle Susceptible to Corruption/Fraud



EVALUATION REPORT

TENDER (AWARD) COMMITTEE

- Bid Evaluation Committees evaluate and review the submitted bids and makes recommendation in respect of contract awards. - Bid Evaluation Committees has wide discretion in excluding bidders and can abuse authority as part of a corrupt scheme.

“RED FLAGS”

* Manipulation of BEC Selection Process: - The BEC members do not have the required technical expertise to properly evaluate submitted bids.

- The utilization of a standing BEC regardless of what is being procured.

- The BEC is too large or is being dominated by a single individual.

* Same risks of corruption are applicable to Tender Award Committee.

Corruption/Fraud Typologies In Procurement Planning BIDDING PHASEBID EVALUATION PHASE


- A Bid Evaluation Report (BER) is prepared and presented by the BEC on completion of the bid evaluation process describing the results and process by which the BEC has evaluated the bids received. The BER may contain a number of indicators of Bid Rigging, e.g. questionable disqualifications and unusual bid patterns.

“RED FLAGS”

* Violation of Procurement Rules: - Evaluation criteria used differ from evaluation criteria stated in tender documents. - Inconsistencies exist between BER and supporting documents. - Improper/arbitrary evaluation sub-criteria or procedures are developed at time of evaluation that differ from the issued tender invitation documents. - BEC ignores stated evaluation criteria in issued tender documents and develops and implement its own method of evaluation. - The winning bidder is not on the short-list or not among list of pre-qualified companies.

Corruption/Fraud Typologies In Procurement Planning BID EVALUATION PHASE

BID EVALUATION REPORT

“RED FLAGS” …

* Questionable Disqualifications: - Lowest priced bidder is declared as non-responsive. - High number of bids is declared non-responsive. - Recommendations and disqualifications are poorly justified. - Bids are rejected because of allegedly missing components, e.g. catalogues/brochures. - Changes in the scoring of bids or arbitrary scoring of bids. - Pressure by end-users, senior management, project official on BEC to select certain bidder.

* Winning Bidder poorly justified: - Technical specifications are copied from the bidding documents or are incomplete. - The manufacturer’s authorization is missing, outdated or inadequate. - Winning Bid does not match requirements in terms of quality, qualifications, etc. - Pages in winning bid are missing, incomplete or unsigned where required.



“RED FLAGS” …

* Unusual Bid Patterns: - Same or similar addresses, telephone and facsimile numbers are shared by bidders. - Unusually high bid pricing by losing bidders without legitimate explanation and which cannot be attributed to error. - Bid prices of competing bidders differ by a set percentage.

* Suspicious Bidders: - Discrepancy between the company address and its telephone number area code.



The Phases in Typical Procurement Cycle Susceptible to Corruption/Fraud



CONTRACT DRAFTING


CONTRACT CHANGES / VARIATIONS

* Regardless of which procurement schedule is used the terms and conditions of a contract cannot, without the contracting entity’s prior written approval, materially differ from those on which bids were prepared and submitted.

“RED FLAGS”

* Delays In Contract Award & Negotiations: - Long delays in contact award or finalization of negotiations.

* Questionable Deviations from Tender Documents and Bid Proposals: - Changes to quality, quantity or specifications in contract deviating from those set out in bidding documents. - Price schedules in contract are not the same as that in the winning bid.

- Unauthorized and arbitrary changes to contract type. - Unauthorized Changes to standard contract clauses. - Methodologies and Work Plan not attached to contract.

Corruption/Fraud Typologies In Procurement Planning CONTRACT MANAGEMENT PHASE

CONTRACT DRAFTING

* A variety of corrupt /fraudulent activities may occur during the Contract Delivery / Execution.

“RED FLAGS”

* Failures:

- Discrepancies between inspection findings, test results, contract specifications and contractor’s claims for payment. - Contractor’s work failed critical tests and inspections. - Consistent complaints from end-users about poor quality good/service/works from contractor.

- Increased / Accelerated product failures or repair costs or re-works.

* Inadequate supporting documentation:

- Absent, inadequate or altered documentation submitted by contractor to support billing.

- Indications from contractor’s financial and other records that it did not incur the cost required to comply with the contract specifications.



“RED FLAGS” …

* Delays in Contract Execution: - Delayed start of works or the delivery of goods/services beyond specified time frames without just cause and subsequent price increases resulting from such delays. - Long delays in contract implementation.

* Poor Reputation of Contractor: - Company has exaggerated or falsified its prior experience.

* Product Substitution: - Contract may substitute contractually specified products with inferior and often cheaper products.

* Sub-standard Work: - Failure of key controls. - Lack of independent oversight / supervision. - Bribery of supervisors or inspectors.



“RED FLAGS” …

* False Claims and Invoices: - False Invoices: - Not receiving any reports for invoiced goods or services. - Invoiced goods or services cannot be located in inventory or otherwise accounted for.

- No Purchase Order exists for the invoiced goods or services.

- Inflated Invoices: - Invoiced prices, amounts item descriptions or terms exceeds BOQ or do not match with contract or PO terms, received goods, inventory or usage records or supporting documents submitted.

- Duplicate Invoicing: - Multiple payments in same time period for the same or similar amount to the same vendor for the same invoice or PO, for the same goods or works.

- Multiple invoices with the same description of goods/services, same amounts, same PO number, by the same vendor.



* Contract amendments and change orders usually present legitimate modifications to signed contracts. However, they can be abused. A common scheme involves collusion between a favoured contractor and procurement functionaries, project officials, senior managers to award a contract a favoured contractor at low price, followed by promptly by one or a series of change orders. “RED FLAGS”

- Abuse of Contract Change Orders: - Pattern of change orders just below the thresholds for review. - Changes in the scope of the contract and required outputs. - Changes in technical specifications. - Changes in Terms of Reference (TORs). - Increases in contract value. - Reductions in quantity of items to be delivered without commensurate reduction in disbursements to be made. - Substitution of materials and equipment


CONTRACT CHANGES/AMENDMENTS


END OF SESSION 4.

Thank You Myron . D. B. BetshangerCorporate Governance & Strategic Management, Ethics, Compliance & ERM Specialist, and Anti-Corruption Specialist, Procurement / Supplier Quality Assurer.

Cell. +27 74 780 3862 / +27 76 228 6088

E-mail: [email protected]

@betshangermyron

LinkedIn: http://www.linkedin.com/pub/myron-duncan-burton-betshanger/37/219/1b8

mailto:[email protected]

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