Transparency is the litmus test of a clean tender process; where secrecy thrives, corruption survives.
In the tender process, integrity is the currency that devalues corruption
What is your experience of an insider threat and impact on your finance, procurement and project lifecycle? There are many areas of the procurement lifecycle where insider influence can manipulate the award of a contract towards an agreed vendor, however, when we consider the tender process do you use data analysis to better understand the level of corruption risk.
UNMASKING CORRUPTION WITHIN THE TENDER PROCESS
The tender process, designed to promote fair competition and ensure the best value for resources, often becomes a breeding ground for corruption and unethical practices. Despite efforts to enhance transparency and accountability, instances of corruption within the tender process continue to undermine public trust and drain economies. This article delves into the various facets of corruption within the tender process, shedding light on the systemic flaws that allow such practices to persist.
Lack of transparency elevates risk: Transparency is the cornerstone of a clean and fair tender process. When the procurement process lacks transparency, suspicions of favouritism and under-the-table dealings arise. Often, key information about the tender, such as evaluation criteria and bidder selection, remains opaque, leading to a loss of confidence in the process and enabling corruption to thrive.
Collusion and bid rigging: One of the most insidious forms of corruption in the tender process is collusion and bid rigging. In these cases, bidders conspire to manipulate the competitive nature of the process, ensuring predetermined outcomes. This unethical practice not only eliminates genuine competition but also inflates costs and compromises the quality of the project or service being procured.
Interference and nepotism: Political or leadership interference and nepotism can significantly compromise the integrity of the tender process. When decisions are made based on political connections rather than merit, qualified bidders are side lined in favour of those with close ties to decision-makers. This erodes public trust, undermines the credibility of the process, and often leads to subpar outcomes.
Inadequate due diligence: Inefficiencies and shortcuts in due diligence processes provide avenues for corruption to seep into the tender process. Insufficient background checks on bidders' financial capabilities, past performance, and potential conflicts of interest can result in contracts being awarded to unscrupulous entities that lack the capacity to deliver.
Weak punitive measures: The effectiveness of anti-corruption measures depends heavily on the severity of penalties for those found guilty of corruption within the tender process. When punishments are lenient or enforcement is lax, corrupt actors are emboldened to continue their illicit activities. Strengthening contract clauses and punitive measures is crucial to deter individuals from engaging in corrupt practices.
Limited oversight: Active compliance programmes and monitoring of the tender process is an important part of accountability. When oversight mechanisms are weak or non existent, there is a lack of independent scrutiny, making it easier for corruption to thrive undetected.
When risk assessing the integrity, transparency and accountability within an organisations procurement processes, the ability to ensure compliance with procurement policy and ethical standards can be integral in ensuring corruption risk and financial loss is prevented.
There are a number of proactive checks that can be carried out to detect and mitigate procurement fraud and corruption risk that includes verifying conflicts of interest, politically exposed persons risk, financial standing and a vendor’s ability to perform a contract.
APPROACH TO RISK ASSESSMENT
Within an organisation, individual risks can range from the nature of power held by an executive or officials who preside over procurement, whether there are discretionary powers or self-imposed monopoly in key decisions to individuals that have access to insider information that is improperly shared with a vendor.
Examining available data sources that can be used for analysis to identify corruption and external risk within the tender process and assessing the root cause where only one vendor responds is a good starting point to determine whether there is insider collusion. There are legitimate occasions in which only one vendor responds within the bidding process, however when we look at the percentage of the annual tenders and vendor responses, the value, extent and responses from the same company may be telling. Is there a need to broaden a supplier base where there is a suspicion of bid rigging.
The true cost of corruption emerges when the tender process becomes a breeding ground for compromised principles.
METHODS OF DATA ANALYSIS
Once the tender data has been collected, additional analysis can be carried out to look at the level of corruption and fraud risk and determine whether there has been internal influence or manipulation. Key areas to look at should include:
The advertising period, has it been deliberately shortened so that legitimate companies aren’t given the opportunity to respond.
Has the scoring matrix been amended or addition criteria added to ensure that technically inferior vendors meet contract requirements.
Has the tender scoring been conducted correctly or has the scoring been inflated to the benefit of a vendor with an inferior product or limited technical expertise compared to their competition.
Was the selection time taken to decide on submitted bids short that may indicate that the decision to award a contract had already been agreed, or too long giving an opportunity to manipulate the selection process.
Is there a pattern to a request for proposals or an invitation to tender and the companies that respond including companies that are the sole submission within the tender process.
RISK RESPONSE
Where there are indicators of corruption risk within the tender process, an assessment of the pre-award process in each case should be considered from the identification of need through to contract award. Additional areas might include:
project business case, justification and authorisation and procurement design to assess whether the business benefit has been exaggerated and the design if greater that the requirement that will increase the project cost;
scope and specification to determine whether there are additional areas in which insider influence can be identified.
CONCLUSION
This analysis may give an indication of corruption within the pre-award stage of procurement and where there is regular analysis of these data points it may also assist an organisation build a profile of the corruption and bidding rigging risk and the level of insider manipulation within the award stage of procurement.
Using data analysis and detection techniques as part of an anti-corruption approach can be play an important part in preventing revenue loss, especially as the Association of Certified Fraud Examiners estimate that 5% of organisation annual revenue is lost to fraud. Does this type of analysis work for you in preventing this type of risk and what other risks have you identified in the pre-award and onboarding process?
Addressing corruption within the tender process requires a multi-faceted approach that includes robust transparency measures, stringent anti-corruption regulations, and active oversight. Systemic flaws such as lack of transparency, collusion, political and executive interference, inadequate due diligence, and weak punitive measures must be acknowledged and tackled head-on. By doing so, governments and institutions can restore public trust, ensure efficient allocation of resources, and promote fair competition in the procurement of goods and services.
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