Presentation on theme: "Gregory F. Vokoun, MBA, CPA/CFF, CIA, CFE, CGFM, CGAP Professional Practice Administrator General Accounting Office Arizona Department of Administration."— Presentation transcript:
Gregory F. Vokoun, MBA, CPA/CFF, CIA, CFE, CGFM, CGAP Professional Practice Administrator General Accounting Office Arizona Department of Administration Governmental Procurement and the Fraud that Accompanies It
Procurement Fraud2 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 Fraud3 Omissions This presentation will not Cover every aspect of the extended procurement process List every possible fraud vulnerability or fraud consideration Give lessons in Benfords Law, Excel or ACL, data mining, etc. Discuss all the slides or all the bullet points on a given slide
Procurement Fraud4 Outline This presentation will Spotlight procurements 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 Fraud5 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 Fraud6 Procurements 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 Fraud7 Fraud Triangle
Procurement Fraud8 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 Fraud9 Fraud Circle Money? People? Fraud!
Procurement Fraud10 The Procurement Process The Essential Phases Identify Need Establish Specifications Solicit & Evaluate Bids & Proposals Draft & Negotiate & Award Contract Monitor Performance
Procurement Fraud11 Organization and Terminology By Phase Vulnerabilities Susceptibilities to attack Considerations Things kept in mind in making decisions or evaluating facts
Procurement Fraud12 Identify Need Vulnerabilities Considerations
Procurement Fraud13 Identify Need Vulnerabilities Unneeded goods or services Excess goods or services Unmerited urgency
Procurement Fraud14 Identify Need Considerations 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 Fraud16 Establish Specifications Vulnerabilities Unnecessarily restrictive specifications Vague / incomplete / defective specifications Unwarranted feature creep Specifications that dont add value Inappropriate or missing performance / quality standards
Procurement Fraud17 Establish Specifications Considerations Contractor involved in writing specifications Specifications designed to fit but one contractor Contractor provided with advance information Requirement splitting
Procurement Fraud21 Solicit & Evaluate Bids & Proposals Considerations 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 Fraud22 Solicit & Evaluate Bids & Proposals Considerations (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 Fraud23 Solicit & Evaluate Bids & Proposals Considerations (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 Fraud24 Solicit & Evaluate Bids & Proposals Considerations (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 Fraud25 Solicit & Evaluate Bids & Proposals Considerations (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 Fraud26 Solicit & Evaluate Bids & Proposals Considerations (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 Fraud29 Draft & Negotiate & Award Contract Vulnerabilities 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 Fraud30 Draft & Negotiate & Award Contract Vulnerabilities (Continued) Misrepresentation of firms capabilities / qualifications Awards to firms which are incapable or unqualified False vendors Undisclosed employee ownership or financial interest in vendor
Procurement Fraud31 Draft & Negotiate & Award Contract Considerations 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 Fraud32 Draft & Negotiate & Award Contract Considerations (Continued) Failure to disclose required information Disqualification of a qualified offeror without adequate or adequately documented justification
Procurement Fraud33 Draft & Negotiate & Award Contract Considerations (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 Fraud35 Monitor Performance Vulnerabilities False claims False pricing data False time records Progress payment fraud Product substitution Ghost employees
Procurement Fraud36 Monitor Performance Vulnerabilities Contract swapping Undisclosed employee ownership or financial interest in contractor or subcontractors
Procurement Fraud37 Monitor Performance Considerations Inadequate / undeservedly favorable evaluation of contractors performance Altered inspection reports Missing / altered serial numbers / model numbers / labels Requests for payments inconsistent with prior cost data
Procurement Fraud38 Monitor Performance Considerations (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 Fraud39 Monitor Performance Considerations (Continued) Material mischarging: price Material mischarging: quantity Material mischarging: quality Labor mischarging: time Labor mischarging: rate Systemic mischarging: extension
Procurement Fraud40 Monitor Performance Considerations (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 Fraud41 Monitor Performance Considerations (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 Fraud42 Monitor Performance Considerations (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 Fraud43 Monitor Performance Considerations (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 Fraud44 Monitor Performance Considerations (Continued) Payments made that are unsupported by invoices Multiple purchases under bid limits Misdirection Protests Failure to take advantage of existing contracts
Procurement Fraud45 Monitor Performance Considerations (Continued) Off-contract purchases Emergency procurements Sole source procurements Impractical to compete procurements Latent defects Double billing Improper indirect cost pool components
Procurement Fraud46 Monitor Performance Considerations (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 Fraud47 Monitor Performance Considerations (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 Fraud48 Monitor Performance Considerations (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 Fraud49 Monitor Performance Considerations (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 Fraud50 Universal Elements / Causes Bribery Kickbacks Conflict of Interest MONEY MAKES THE WORLD GO AROUND
Procurement Fraud51 Universal Indicators of Fraud Unaccountably lavish lifestyles Excessive socialization between employees and contractors Favoritism Post-service employment Avoidance of standard procedures / audit / oversight
Procurement Fraud52 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 Fraud55 Procurement Fraud Who 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.