Integrity Filters in eProcurement Systems Michael Kramer Wmkramer@msn.com Global Public Procurement Conference September 2018

The Filters can run on a continuous monitoring or ad hoc basis. “Integrity Filters” are sophisticated algorithms to detect and prevent fraud in electronic procurement transactions. The Filters can be embedded in eProcurement systems, installed on top of MIS or ERP Systems, or run against procurement data recorded in databases or spreadsheets. The Filters can run on a continuous monitoring or ad hoc basis.

Benefits of Fraud Filters Fraud Filters exploit electronic procurement data to: Block non-compliant transactions Provide instant alerts of possible fraud Instantly review 100% of all transactions Permit real time remote monitoring by donors or oversight agencies Create detailed audit trails and digital evidence for investigators The Filters also can be applied to databases of historic procurement data

Types of Fraud Filter reports Significant procurement statistics e.g., number of contracts awarded to certain contractors by certain approving officials Compliance reports Contracts awarded in violation of procurement rules, e.g., sole source contracts above the sole source limit “SPQQD” reports Selection, Price. Quantity, Quality and Delivery indicators that can point to fraud or abuse Fraud reports Collusive bidding and bid rigging indicators False and inflated invoices indicators, etc.

Sample fraud and corruption schemes that can be detected by Integrity Filters Collusive bidding Bid rigging Kickbacks Conflicts of interest Shell companies False, inflated and duplicate invoices Phantom vendors Purchases for personal use, resale or diversion

Categories of Indicators “Outliers” Anomalies Unusual Ratios Unusual Trends Unusual Patterns Unusual Matches and Mismatches Non-compliance with Rules and Regulations

BLUE: links to online public record information Color-coded Sample List of Fraud Filter’s Indicators organized by scheme RED: Real-time ALERTS of significant indicators, e.g., warning of a bid submitted by a debarred company or different bids from the same IP address BROWN: Pre-programmed REPORTS for other common procurement fraud schemes, waste or abuse ORANGE : Other less common reports to be listed in a HANDBOOK or ONLINE GUIDE for auditors, investigators or other users BLUE: links to online public record information

Collusive Bidding Secret agreements by bidders or suppliers to divide work and artificially inflate prices, often with the complicity of government officials Sample indicators include: Bids from the same IP address Bidders with same contact info Unusual bid patterns, e.g., bids an exact % apart; “ping pong” bids Sequential bid securities Bids that exceed the confidential owner’s estimate by > 30% Pattern of rotation of winning bidders Same bidders always win, lose Bids not in conformity with prior legitimate bid patterns Losing bidders can’t be located in corporate registries, directories or on the internet

Graphic Reports of Collusive Bidding Indicators

Primary indicators of Collusive Bidding Indicators that can be detected by Fraud Filers highlighted in RED Persistently high or increasing bid prices Bid prices drop when a new competitor enters Rotation of winning bidders by job, type of work or geographical area Physical similarities in bids or proposals Same calculations, type face, handwriting, spelling errors Unusual bid patterns, e.g., Bids are identical, very close or too far apart Bids are an exact percentage apart Winning bid is within 5% of the reserve price Bidders rebid in same order in later rounds ”Ping pong bids” Losing bidders are hired as subcontractors Less than 30% of bidders who buy bid packages submit bids Common addresses, personnel, phone numbers in bids Sequential bid securities Distant bidder is low bidder (per GPS coordinates)