Corruption vulnerabilities in public sector procurement

By Alistair Maclean

November 16, 2015

Alistair Maclean

Each year, state government agencies and councils spend billions of dollars on goods and services for Victorians. However, recent IBAC investigations and reviews have shown that public funds can be misappropriated through compromised procurement processes for private gain.

From IBAC’s experience and insights, we are able to share the common warning signs that can show procurement processes are being exploited, or simply ignored. With knowledge of these red flags, public sector agencies can better assess and mitigate corruption risks and ensure funds are being spent as intended — delivering important government services and outcomes to the community.

Major IBAC investigations such as Operations Fitzroy and Ord have exposed how procurement processes can be vulnerable to corruption, and the impacts this can have on the public sector, individuals and the community.

Our research has also repeatedly highlighted procurement as a major corruption risk. In November 2014, we reported that Victorian public sector bodies rated procurement as one of the most common corruption issues they have dealt with over the past five years.

Procurement is vulnerable to corruption because it can involve large sums of money, often spent in small parcels, in highly devolved decision-making structures, with limited central oversight. Additionally, employees involved in procurement may have varying capability due to inadequate training in procurement processes. There may be pressure to get the job done quickly to meet deadlines, where probity takes a backseat to productivity. These are just some of the red flags IBAC has identified throughout the procurement process that may be indicators of corrupt practices.

As part of Fraud Awareness Week 2015, IBAC has developed a resource kit to support public sector agencies in communicating procurement risks and red flags to their staff. Our resource kit also provides practical information about the control measures public sector agencies may consider as useful to help mitigate these corruption risks in their workplace.

While more detailed information on the red flags is available at www.ibac.vic.gov.au, in general public sector agencies should ensure:

  • there are clear policies and procedures in place that govern procurement of goods and services;
  • those policies and procedures are regularly reviewed and communicated to staff and external suppliers;
  • employees who are involved in procurement receive appropriate training in their accountabilities, including how to identify possible corrupt conduct;
  • procurement is identified as a corruption risk and is addressed through risk management processes, as well as planned and random auditing;
  • there are clear mechanisms for reporting suspected corrupt conduct;
  • their protected disclosure procedures are clearly communicated to all staff.

All public sector employees need to be aware of the risks and take responsibility for ensuring integrity and value-for-money in procurement. Employees are best placed to identify risks in their workplace and to take steps to address those risks. By being vigilant, all public sector employees can help build a corruption-resistant culture.

Suppliers also have a part to play, and should be encouraged to report uncompetitive tender and selection processes to the agencies to which they are bidding for projects.

Corruption impacts individuals, public sector agencies, suppliers and the community. Corruption in relation to procurement can undermine the best value for money principle, can lead to financial loss, reputational costs, damage to private businesses, and poor-quality goods, services and infrastructure. It’s in everyone’s interest for the public sector to ensure fair procurement and to build corruption-resistant processes and cultures.

Alistair Maclean is the Chief Executive Officer of the Independent Broad-based Anti-corruption Commission (IBAC). IBAC is Victoria’s anti-corruption agency responsible for identifying and preventing serious corrupt conduct across the whole public sector, including Members of Parliament, the judiciary and state and local government.

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