Prevent fraud and corruption in procurement

Countering fraud and corruption in procurement

Procurement is a process of acquiring goods and services. It begins when an entity identifies a need and decides what needs to be procured. It continues as they:

assess risk
assess, seek and evaluate alternative solutions
award and report a contract.

Many types of fraud and corruption can happen across the procurement life cycle in government. These include:

grooming
bribery
undeclared conflicts of interest
misuse of information
abuse of power
bid rigging
payment diversion.

Any form of fraud or corruption is a serious issue that can undermine the integrity, efficiency and effectiveness of public administration.

Principles to follow

To counter fraud and corruption in procurement processes, Australian Government entities should consider and apply the following principles:

There will always be a risk of fraud and corruption, as there will always be people motivated by money or influence to act dishonestly.
To fight fraud and corruption, we first need to find them.
There is no ‘silver bullet’ to countering fraud and corruption. We need holistic approaches that combine detection, prevention and correction.
The most cost-effective way to control fraud and corruption is always prevention.
Always consider fraud and corruption risks over the entire life cycle of the procurement process.

How to build risk management into procurement processes

There are steps you can take throughout the procurement life cycle to identify and minimise fraud and corruption risks.

Identify and assess fraud and corruption risks

Understand what the risks are. When officials have a clear and specific understanding of the fraud and corruption risks, they can make better decisions about their risk tolerance or make necessary adjustments to procurement plans and processes.

Learn about conducting a fraud risk assessment.

Think like a fraudster

When people commit fraud, they take on one or more 'personas'. By exploring these personas and how they operate, officials can better understand how their procurement activities might be vulnerable to fraud. This understanding will help them minimise opportunities for fraud and corruption across the procurement life cycle.

Learn about the different types of fraudsters.

Test your controls and assumptions

Control testing is a proactive and proven way to eliminate your blind spots. It helps officials find vulnerabilities and challenge assumptions about how fraud and corruption is managed within government procurement.

When officials know where their programs are vulnerable, they are better informed to prevent fraud or uncover where they are being exploited.

Learn about testing controls to see if they are effective.

Introduce controls

Learn about different control types to help you prevent, detect and respond effectively to fraud and corruption risks in the procurement life cycle.

Self-disclosure and reporting processes

Require and support staff and third parties to self-disclose gifts, benefits, incidents, mistakes and real or perceived conflicts of interest.

Segregation of duties

Separate duties by allocating tasks and associated privileges for a business process to multiple staff. This is very important in areas such as payroll, finance, procurement, contract management and human resources. Systems help to enforce the strong separation of duties.

Trained and qualified staff

Provide staff with adequate training to help them apply correct and consistent processes and decisions.

Managerial, independent or expert oversight

Make sure a manager, independent person or expert oversees actions and decisions. Involving multiple people in actions and decisions increases transparency and reduces the opportunity for fraud.

Integrity checks and suitability assessments

Assess the integrity of new employees, contractors or third parties using measures such as entry level checks, probationary periods, suitability assessments and security vetting.

Staff and contractor rotation

Rotate staff and contractors in and out of roles to avoid familiarity. Staff and contractors can become too familiar with processes, customers or vendors, which can lead to insider threats.

Legislation and policies

Legislation and policy can help prevent, detect and respond to fraud, such as by outlining clear rules, regulations and criteria. This allows entities to collect, use and disclose information, enforce penalties and recover fraud losses.

Specific and consistent processes

Make sure requests or claims use a specific form, process or system for consistency.

Contractual clauses

Develop contractual clauses to help prevent, detect and respond to fraud or non-compliance.

Quality assurance checks

Conduct quality assurance activities to confirm that processes are being followed correctly and to a high standard, and that materials or goods are what they are claimed to be.

Audits or reviews

Internal or external audits or reviews evaluate the process, purpose and outcome of activities. They identify weaknesses in government programs and systems. They stop clients, public officials and contractors from taking advantage of those weaknesses to commit fraud, act corruptly or avoid exposure.

Related resources

Procurement Administration Counter Fraud Toolkit

The Procurement Administration Counter Fraud Toolkit is designed to help Australian Government entities identify and manage fraud and corruption risks in the procurement administration process from procurement planning to negotiation and award.