Upload
jaren-wombles
View
219
Download
4
Tags:
Embed Size (px)
Citation preview
Gregory F. Vokoun, MBA, CPA/CFF, CIA, CFE, CGFM, CGAP
Professional Practice AdministratorGeneral Accounting Office
Arizona Department of Administration
Governmental Procurement and the Fraud that Accompanies It
Procurement Fraud 2
Learning Objectives
Gain familiarity with procurement process
Gain familiarity with fraud vulnerabilities in the procurement process
Gain familiarity with fraud considerations in the procurement process
Earn an hour of CPE
Procurement Fraud 3
Omissions
This presentation will not Cover every aspect of the extended
procurement process List every possible fraud vulnerability
or fraud consideration Give lessons in Benford’s Law, Excel
or ACL, data mining, etc. Discuss all the slides or all the bullet
points on a given slide
Procurement Fraud 4
Outline
This presentation will Spotlight procurement’s centrality to
government operations Briefly introduce the (simplified)
procurement process Introduce fraud vulnerabilities and
considerations by phase of the procurement process
Provide points meriting reflection
Procurement Fraud 5
Cautions
Some vulnerabilities and considerations will be listed in more than one phase of the procurement process
The fact that a fraud vulnerability and a fraud consideration exist in a given situation does not mean that a fraud has occurred, only that it may have
Procurement Fraud 6
Procurement’s Centrality to Governmental Operations
Supplies Equipment Buildings School lunches Health insurance Heavy equipment Maintenance Transportation Buildings
Roads Sewers Weapons Professional fees Street lights Communication After school care Printing Etc.
Procurement Fraud 8
Procurement Fraud Perpetrators Government employees or management
Procurement personnel Purchasing personnel Receiving personnel Payment personnel Program personnel Contract administration personnel Accounting personnel Management personnel Audit personnel Etc.
Contractor employees or management Etc.
Procurement Fraud 10
The Procurement ProcessThe Essential Phases
Identify Need Establish Specifications Solicit & Evaluate Bids & Proposals Draft & Negotiate & Award
Contract Monitor Performance
Procurement Fraud 11
Organization and Terminology
By Phase Vulnerabilities
Susceptibilities to attack Considerations
Things kept in mind in making decisions or evaluating facts
Procurement Fraud 13
Identify NeedVulnerabilities
Unneeded goods or services Excess goods or services Unmerited urgency
Procurement Fraud 14
Identify NeedConsiderations
Why was this particular good or service purchased?
Why was so much of a particular good purchased?
Why is so much of this service needed? What does it do? Why does it cost so much?
Was this really an emergency procurement? Is this really the only provider of a particular
good or service?
Procurement Fraud 16
Establish SpecificationsVulnerabilities
Unnecessarily restrictive specifications
Vague / incomplete / defective specifications
Unwarranted feature creep Specifications that don’t add value Inappropriate or missing
performance / quality standards
Procurement Fraud 17
Establish SpecificationsConsiderations
Contractor involved in writing specifications
Specifications designed to fit but one contractor
Contractor provided with advance information
Requirement splitting
Procurement Fraud 19
Solicit & Evaluate Bids & ProposalsVulnerabilities
Bid rigging Contract unbalancing Bid rotation and sporadic bidding Kickbacks / “pay-to-play” schemes Token / complimentary / shadow
bids Market allocation
Procurement Fraud 20
Solicit & Evaluate Bids & ProposalsVulnerabilities (Continued)
Change order schemes S-/ W-/ M-/ L-/ D-/ BE
misrepresentation
Procurement Fraud 21
Solicit & Evaluate Bids & ProposalsConsiderations
Falsification / misrepresentation of credentials / certifications / experience / financial performance / successes
Excessive / repetitive use of one contractor in a competitive field
Inadequate publication of solicitation Fraternization with contractors Recommendations / endorsements
Procurement Fraud 22
Solicit & Evaluate Bids & ProposalsConsiderations (Continued)
Turns taken in submitting low bids Pattern in awards to vendors Winning contractor uses losers as
subcontractors Competitors refrain from bidding Competitors submit unreasonably
high bids
Procurement Fraud 23
Solicit & Evaluate Bids & ProposalsConsiderations (Continued)
Eminently qualified contractors uncharacteristically refrain from bidding on contracts: aspects of project; certain locations; entire contracts
Most competitors submit excessively high bids so the contract goes to the competitor with the merely somewhat high bid
Procurement Fraud 24
Solicit & Evaluate Bids & ProposalsConsiderations (Continued)
False, out-of-date, misleading data used to support proposal
S-/ W-/ M-/ L-/ D-/ BE certifications Bid patterns: too close, too high,
round numbers, identical margins or percentages (either winners or losers)
Procurement Fraud 25
Solicit & Evaluate Bids & ProposalsConsiderations (Continued)
Different contractors making identical errors in bids
Different / losing contractors with same bids / identical line items
Bid prices drop when new bidder enters market
Similarities between multiple bidders: same addresses, phones, people
Procurement Fraud 26
Solicit & Evaluate Bids & ProposalsConsiderations (Continued)
Persistent and unjustified high prices from all bidders compared in local market compared to other markets
Joint venture bids by firms that usually bid independently
Procurement Fraud 27
Solicit & Evaluate Bids & ProposalsConsiderations (Continued)
Storefronting between natural rivals
Losers’ bids deemed non-responsive / non-compliant / incomplete
Procurement Fraud 29
Draft & Negotiate & Award ContractVulnerabilities
Disclosure of confidential information resulting in a competitive advantage
Poorly documented source selection Failure to comply with procurement
process Bias or favoritism during evaluation
process or contract award
Procurement Fraud 30
Draft & Negotiate & Award ContractVulnerabilities (Continued)
Misrepresentation of firm’s capabilities / qualifications
Awards to firms which are incapable or unqualified
False vendors Undisclosed employee ownership
or financial interest in vendor
Procurement Fraud 31
Draft & Negotiate & Award ContractConsiderations
Information possessed by one contractor but not by others
Poorly written or poorly followed policies governing source selection
Awards to contractors with poor histories of past performance
Socialization
Procurement Fraud 32
Draft & Negotiate & Award ContractConsiderations (Continued)
Failure to disclose required information
Disqualification of a qualified offeror without adequate or adequately documented justification
Procurement Fraud 33
Draft & Negotiate & Award ContractConsiderations (Continued)
Contractor gift(s) to employee(s) Post-award employment Unusual or unnecessary middlemen or
brokers Unwarranted favoritism of a given
contractor Matching addresses, etc., between
contractors, contractors and employees, etc.
Procurement Fraud 35
Monitor PerformanceVulnerabilities
False claims False pricing data False time records Progress payment fraud Product substitution Ghost employees
Procurement Fraud 36
Monitor PerformanceVulnerabilities
Contract swapping Undisclosed employee ownership
or financial interest in contractor or subcontractors
Procurement Fraud 37
Monitor PerformanceConsiderations
Inadequate / undeservedly favorable evaluation of contractor’s performance
Altered inspection reports Missing / altered serial numbers /
model numbers / labels Requests for payments inconsistent
with prior cost data
Procurement Fraud 38
Monitor PerformanceConsiderations (Continued)
Frequent invoice / voucher errors Poor cost documentation Counterfeit labeling Claims for unallowable costs Little physical progress on contract
though significant costs have been billed
Procurement Fraud 39
Monitor PerformanceConsiderations (Continued)
Material mischarging: price Material mischarging: quantity Material mischarging: quality Labor mischarging: time Labor mischarging: rate Systemic mischarging: extension
Procurement Fraud 40
Monitor PerformanceConsiderations (Continued)
Double counting costs as both direct and indirect
Professional fees: large sums charged for “services rendered” with few details
Significant number of field failures Unauthorized changes Altered / missing / late test reports
Procurement Fraud 41
Monitor PerformanceConsiderations (Continued)
Unexpected / premature part failures
Restricted access to storage / production facilities
Restricted access to records Delayed access to records No segregation between
contracting, purchasing, receiving, storing, issuing, inspection, etc.
Procurement Fraud 42
Monitor PerformanceConsiderations (Continued)
Continued acceptance of high priced goods or services
Continued acceptance of substandard goods or services
Failure to file financial disclosure forms
Change in employee lifestyle Employee declines promotions
Procurement Fraud 43
Monitor PerformanceConsiderations (Continued)
Socialization between employee and contractor / vendor
Vendor / contractor and employee address / phone match
Post office boxes Change orders: numerous / costly Contractor inability to perform
Procurement Fraud 44
Monitor PerformanceConsiderations (Continued)
Payments made that are unsupported by invoices
Multiple purchases under bid limits Misdirection Protests Failure to take advantage of
existing contracts
Procurement Fraud 45
Monitor PerformanceConsiderations (Continued)
Off-contract purchases Emergency procurements Sole source procurements Impractical to compete procurements Latent defects Double billing Improper indirect cost pool
components
Procurement Fraud 46
Monitor PerformanceConsiderations (Continued)
Altered, missing documents Irregularities between standard
stationary and other document logos Unusually high volume purchased
from one vendor Vendor resists inspection Expect originals but get photocopies
Procurement Fraud 47
Monitor PerformanceConsiderations (Continued)
High rate of rejections Required certifications not signed Vendor, not buyer, selects samples
for testing No warranties provided Gratuities Failure to claim discounts
Procurement Fraud 48
Monitor PerformanceConsiderations (Continued)
Labor Match between budget & actual too
good Alteration to timecards Timecards filled out by management Inconsistencies between timecards &
bills Job misclassification Reallocation of charges
Procurement Fraud 49
Monitor PerformanceConsiderations (Continued)
S-/ W-/ M-/ L-/ D-/ BEs Employees shuttle back and forth between
BEs Payments to be made to other than BE BE owner not involved after award Interlocking ownership between BE and non-
BE BE always uses same non-BE as
subcontractor BE owner without appropriate background
Procurement Fraud 50
Universal Elements / Causes
Bribery Kickbacks Conflict of Interest
MONEY MAKES THE WORLD GO AROUND
Procurement Fraud 51
Universal Indicators of Fraud
Unaccountably lavish lifestyles Excessive socialization between
employees and contractors Favoritism Post-service employment Avoidance of standard
procedures / audit / oversight
Procurement Fraud 52
Universal Indicators of Fraud(Continued)
Unwarranted praise Excessive urgency Avoidance of oversight Employees shifting between
contractors Repetitive use of subcontractors Interlocking ownership or
management
Procurement Fraud 53
Universal Enablers
Apathy / Disinterest Lack of Knowledge / Understanding Sergeant Schultzing
Procurement Fraud 54
Universal Remedies
Knowledge and Understanding Vigilance Predictable Punishment Ethics
Procurement Fraud 55
Procurement FraudWho Pays?
“Ultimately, corruption schemes cause governments to overpay for services (since the lowest bidder would likely have been selected had corruption not taken place), thus benefiting the perpetrator at the expense of taxpayers.”
Procurement Fraud 56