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Public Sector Procurement Fraud.

11th July 2017

The fact that procurement fraud exists in the public sector is nothing new. It has been a problem for centuries in every country in the world

And still hasn’t been eradicated completely, even in the UK. So why is this? Do we need to update our approach to spotting and dealing with it? We could look to the private sector for the answers but though there are pockets of good practice, there are many organisations in this sector too, oblivious to the damage fraud can wreak on those unprepared to do something about it.

In 2011, The National Fraud Authority’s (NFA) annual fraud indicator stated that procurement fraud has an annual cost to the UK economy of around £2.4bn.

In the 2013 report released in Junethe figure was much the same.

In 2013, The Audit Commission stated in its report Protecting the Public Purse, Fighting Fraud against Local Government, that procurement fraud was, “the single largest area of financial loss to fraud.” In the public sector?

I believe that procurement fraud globally is both under reported and under recognised. The figures reported here are much higher but without adequate mitigation plans in place, measurement is difficult. And what about the private sector? Coonsidering risk to reputation as well as to the bottom line, many companies would rather keep the reality of their losses to themselves.

Biut, the public and private sectors are inextricably linked when they work together in

PPPs (Public Private Partnerships) or PFIs (Private Finance Initiatives).

Because the reality is that any organisation that procures or manages a supply chain is at risk from procurement fraud. So that’s every sector, every day. Some organisations are aware of the risks related to health and safety for instance and will dedicate reoursce and efforts to measure and mitigate against, but procurement fraud awareness still seems to fall through the net.

Anti-procurement fraud planning is essential to protect an organisation’s spend, its profit and reputation.Fraudsters plan their activities often with great precision and will find any commercial weakness and exploit it.

Here are:

Fraudsters will often get to know the organisation’s policy, strategy and the people who have influence either directly or indirectly when contracts and/or orders are placed so having clear lines of responsibility and traceability will prevent fraudsters taking the first step

Even if the fraudsters are caught, not all organisations will take formal action against the individuals by using the organisation’s disciplinary process or by calling the police to prosecute through the courts because of the embarassment. But if these individuals are removed quietly, they are then free to try their fraud methodology in other organisations linked to the original company - maybe a joint venture partners, sub-contractors or customers.

Case study:

An organisation is the victim of ‘ghost worker fraud’ (billing for workers that do not exist) on a project site for around 8 months. This is a very common type of fraud.

This organisation decided to avoid any damage to its reputation if this fraud was to become public knowledge, by removing the individual concerned quietlywithout taking any formal actions. They didn’t however asses the threat that this individual may pose to them in the future.

The organisation was managing several complex projects at the same time, so the fraudster with their insider knowledge simply approached another project area and started to work for another company.

Any ideas how long it took him to start committing fraud on this project?

The answer is two weeks and this time, the fraud wasn’t identified for 18 months.

Procurement fraud can take many forms, some more serious than others. It could be the manipulation of tenders or bid rigging for instance. If this type of fraud is not detected, it can not only represent an immediate financial loss but also the loss can continue throughout the lifecycle of the contract. Combine this with the risk of internal staff being influenced by outsider fraudsters then this could have a significant impact on an organisation. Procurement fraud requires some form of collusion from individuals within an organisation to give it any chance of success, so…?.


The first step is persuading boards and CEOs that investing in a mitigation plan around procurement and supply management is a necessity. Not for reasons around the likelihood of where fraud is likely to take place, but for the reason that that’s where the spend is.

Next steps:


Many organisations have whistle blowing hotlines in place which is an excellent move. But fraud can be difficult to report if staff aer unaware of what they are looking for.

Many organisations we have encountered do not have an anti-procurement fraud training programmes for their staff. This is an important opportunity missed, as often the intelligence and resources to identify procurement fraud already exist within the organisation.

It is equally important to consider who in the organisation should be trained..

A suggested list could be the procurement directorate, audit, projects staff, risk, compliance staff, those responsible for organisational strategy development and carrying out and managing procurement fraud investigations.

The wider picture

How do we combat procurement fraud at an organisation- wide and at national and international levels?

This standard is designed to raise the profile of the risk of procurement fraud and assist organisations in considering procurement fraud as a risk. This standard can help staff identify instances of procurement fraud

Will we ever stop procurement fraud? From historical research the answer is no but we can reduce our losses and ensure we are fully prepared against this risk to protect the public purse.

Paul Guile, FCIPS, MA is the Head of Global Procurement Fraud Advisory Services and a Fellow for the Chartered Institute of Purchasing and Supply. He is also a part time lecturer at Teesside University for Fraud and Financial Crime.

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