Identifying & Avoiding Tender Fraud: 7 Fraud Types & 4 Measures to Avoid it

Tender Fraud has been, is & will always be in the spotlight. There are many instances detected and they will continue to be detected, especially in emerging markets.

7 Main types of tender fraud

• Misrepresentation
  Misrepresenting a company’s credentials including ownership, management, directors and turnover to avoid identifying conflicts of interest. This is often achieved using forged documents.
• Collusion & Manipulation
  Collusion and manipulation in the bidding/tendering process between employees of the issuer of the bid and the bidding company leading to bribes and kickbacks. This is a growing area of tender fraud where tenders are issued by government departments where the controls are weak. Private companies with unethical practices often exploit this route.
• Falsification
  Falsification of statements and claims in the bidding process including failure to meet contract specifications. Claiming to have accreditations, successful installations and satisfied customers that are not credible.
• Substitution
  Substitution of products and supplying defective or lower quality products than those that are offered and priced in the tender document.
• Price Fixing
  Price fixing and bid rigging through colluding with competitors. This has the effect of ensuring success of a tender for the partners effectively excluding other bidders.
• No Tender Submitted
  Awards are made to companies that did not submit a tender and assumptions are made that they carried out the work after receiving false invoices. Payments are then made on the false documents by corrupt officials.
• Price Inflation
  Inflating of prices especially within the water purification, medical and pharmaceutical industries where normal procedures are circumvented or where there is a sole supplier. Rebates can be given to negotiators after the contract is in place.

Avoiding tender fraud

Policies and procedures need to be put into place to ensure early fraud detection. Government departments and private companies are focusing extensively on implementing and extending risk, governance and compliance systems.

The main objectives are to increase the entity’s ability to detect fraud early and implement stiff penalties and exposure for those found guilty of manipulating tenders.

4 Measures to Avoid Tender Fraud

Some of the measures that are used to avoid tender fraud are:

• Increase disclosure at all stages of the tender process including publishing names of successful and unsuccessful bidders.
• Introduce enhanced statutory and tax compliance measures
• Background check on potential employees including reviewing their lifestyle and expenditure habits
• Frequent vendor audits at their premises including tracking all contract documentation related to a tender

Conflict of Interest

Conflict of interest is one area of tender fraud that is becoming more sophisticated. Fraudsters hide their true identities to conceal family relationships with influential people in tendering entities. It has been found repeatedly that government employees have ownership interests in suppliers, either directly or through their spouses or family members.

Bribery

In a study by Price Waterhouse Coopers (PWC) bribery was the most prevalent type of scheme uncovered accounting for 27% of the schemes identified.

What's unique is that almost half (45%) of respondents did not enter a specific market or pursued a particular opportunity because of corruption risks. And 42% believe their competitors pay bribes. (1)

Tender fraud cases involving bribery represent some of the most objectionable abuses of authority and often involve experienced employees.

It is now the norm for all bidders for state & government contracts to be published on the relevant government department’s website, including the disclosure of personal details of all directors, shareholders, trustees and key officials.

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References:

(1)Confronting corruption - The business case for an effective anti-corruption programme