Procurement fraud ‒prone regions

MOST executives are worried about the level of fraud and corruption that is prevalent in procurement activities of their organisation nationally and abroad.

Report by Nyasha Chizu

The challenge is that they only see symptoms of such activities in their organisations, maybe from the behaviour and conduct of buyers and staff responsible for buying decisions, or from monitoring the bottom line.

Taking a cue from the health sector; diagnosis is required before a prescription.

Popular musician Oliver Mtukudzi described it in a poetic manner in his music: “Having a headache is a symptom of a problem, what causes the headache is the problem”, when loosely translated.

It is, therefore, critical to identify the root of procurement fraud and corruption.

The problem is international and the Organisation for Economic Co-operation and Development (OECD) describes it as “procurement grey areas”.

Procurement activity is the conduit of cash outlay towards suppliers and the outside world creating opportunities for funds to be diverted for personal gain by corrupt elements of society.

The bidding process is referred to in procurement language as the “tip of the iceberg”.  Most institutions put a lot of effort to regulate this process in both the private and public sector.  Organisations with ordinary systems have transparent and regulated bidding process.

Activities are well documented to the extent that an audit trail is possible.

Areas that have not been given too much regard yet hibernating corruption and fraud, are the pre-bidding and post-bidding phases of a procurement cycle.

Pre-bidding phase relates to activities that include specifications designing, request for proposal (RFP) designing, choice of procurement method, decisions for exemptions to competitive procedures, etc that eliminates competition tailoring specifications around a specific product.

RFP requirements are meant to verify compliance with the law in public sector, supplier’s organisational fit into buyer’s strategy, culture and values for both sectors.

However, the RFP requirements can be doctored to eliminate competition.

Such issues are difficult to identify and monitor, especially when one is not aware of the procurement grey areas.

Procurement methods employed depend on goods and services that one intends to purchase.

A procurement decision may be cost based, quality based, or combination of both.

Apart from the decision variable, a procuring organisation will need to make a choice of the market.

A decision on whether it is going to be a local tender, limited tender, open tender, international tender, etc, is an area potential for fraud and corruption, according to OECD.

Most users prefer to source goods and services from a specific supplier without cogent reasons of avoiding competition.

Most justifications for direct purchase are fraudulent and corrupt in all sectors including the reasons for exempting competition which in most cases are flimsy, but supported by irrelevant technical jargon which most decision makers are incapacitated to challenge.

Post-award activities such as contract management and management of scope and price variations are not fully regulated.

Payment processing has procedures regulated in accounts section excluding the operational activities leading to the payment exposing the whole system.

Procurement committees and auditors need some understanding of the procurement grey areas in order to effectively manage them.

Nyasha Chizu is a Fellow of CIPS and CIPS Zimbabwe branch chairman writing in his personal capacity.
Feedback: chizunyasha@yahoo.com

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