Music introduction
INTERVIEWER: Hello and welcome to the latest IBAC corruption prevention podcast. IBAC is Victoria’s anti-corruption agency and it’s our role to expose, investigate and prevent public sector corruption and police misconduct.
To mark fraud awareness week we’re taking a closer look at public sector procurement and how such processes can be at risk of being corrupted. Purchasing goods and services or contracting external suppliers are everyday tasks in the public sector, with billions of dollars in tax payer money awarded. But IBAC’s recent investigations and reviews have exposed how procurement processes can be vulnerable to corrupt conduct.
We are fortunate to be joined by Geoff Crawford, Assistant Director Fraud Prevention at the Department of Justice and Regulation. Geoff is responsible for matters concerning the prevention and investigation of fraud and corruption in the department. Thanks for speaking with us Geoff.
GEOFF CRAWFORD:Good morning and thank you for the opportunity to come and speak with you on this rather interesting topic. Thank you.
INTERVIEWER: You’ve been involved in a numerous investigations and reviews in this area. Can you describe how procurement and contract management may be vulnerable to corruption risks?
GEOFF CRAWFORD: This is probably one of the more significant areas that corruption can find its way into public sector activities. Throughout the lifecycle of procurement there could be many points where fraud and corruption becomes a potential issue for people. There’s key risks in the specification phase, determining the nature of the tender, shortlisting phase, valuation of tenders, managing deviations, ensuring compliance with product quality, pricing etc, in other words all phases of the tender. The key issue is to focus on the proper and regular management of the contracts.
INTERVIEWER: In your experience, what are some common red flags that might indicate misconduct and corruption in procurement activities?
GEOFF CRAWFORD:There are many signs of problems that could arise. These are commonly known as red flags or warning signs. In the procurement context some of these could be an increase in purchasing in inventory but no increase in sales, in other words what is happening to the inventory. Invoices that are not compliant with contractual arrangements. Does the unit price match with the goods that were identified in the contract. Charges without shipping documents. Payments to vendors who aren’t on an approved list. Purchases that bypass the normal procedures. Vendor addresses matching employee addresses in some cases. Purchasing agents that pick up their vendor payments instead of having it mailed, so there’s many more than this but there’s probably just a few.
INTERVIEWER: How can this type of conduct go undetected?
GEOFF CRAWFORD: There’s a range of reasons why things go wrong, it usually comes back, unfortunately, to managers not being effective in their roles. This could be reflected through poor management of conflicts of interest, allowing the processes to be undertaken without suitable oversight or probity measures, shortcuts taken in the interest of saving time or just in a busy environment trying to get things done. Additionally not knowing the business well enough to see when anomalies are actually taking place.
INTERVIEWER: At the extreme end of the scale the consequences are significant. While most identify with the monetary impact, can you talk us through the broader consequences?
GEOFF CRAWFORD: I think you’re right to point out that money is not the only issue that comes out of these problems. Sadly for an organisation there can be many consequences which emerge from the detection of fraud and corruption. These can include loss of reputation of the agency, reluctance of people to deal with the agency if they thought it to be corrupt, in other words why bother putting in a tender if we know who is going to get it anyway. Inability to provide services due to deficient procurement – we just don’t have what we thought we paid for so we can’t deliver the services – and one of the things that is not often thought about is the impact on staff. There can be quite a significant breach of trust and I’ve seen circumstances where people actually need counselling to get through what’s happened in their workplace because they thought they trusted the people they were working with.
INTERVIEWER: So who owns the responsibility when things go wrong?
GEOFF CRAWFORD: In the first instance I’d suggest that all people in the department are going feel tainted to some degree and might be put in the same class as the offenders who were actually committing the behaviour. There will be some who will feel some sort of responsibility if they realise that what they were seeing was wrong and they didn’t take any action or respond appropriately, so there’s going to be a sense of concern there. But more specifically the manager of the areas will have the spotlight on themselves, hopefully, to be called to account to explain what they were doing or not doing. There is also a growing trend for senior management to be called to account and explain also what they were doing or not doing while the corrupt behaviour was taking place. And I think this is really important because this is part of getting into the mindset of any attempts to reduce or contain corruption has got to be the tone from the top, and this is really important, so there has to be buy in from senior management around this who ultimately need to take responsibility and not blame somebody else.
INTERVIEWER: What are the basic probity processes that all procurement tasks should be subject to?
GEOFF CRAWFORD: There’s a range of things that need to be looked at and some of the key ones are good probity checking to make sure the processes are followed and at the end of the day you have a very good understanding of who you are dealing with. Most agencies have a reputation issue to consider and they wouldn’t want to be dealing with companies that are inappropriate or have demonstrated previously that they’re not good corporate citizens. The other processes that can be followed is making sure the activity is matched with budget spending that was planned and it’s not coming out of left field with no apparent budget. Ensuring compliance with contractual arrangements is another important thing that is often overlooked. People tend to pay invoices when they come in and there’s not a lot of matching back to what did the contract actually say that we should be doing. So they are probably some of the key areas.
INTERVIEWER: All organisations will generally have relevant policies and procedures in place. What are some tips to ensure that these are practical documents that are put into practice?
GEOFF CRAWFORD: I think that one of the big mistakes that people make is that will have have good policies on the face of it, but the problems arise where they are not reviewed regularly – they are not updated to reflect any new processes that come through. In other words if you change your business model and the way you do your business, are you also looking at the policies? I think also management have a responsibility to review the policies regularly to ensure that they’re not missing things that could be slipping through that they should be aware of. In fact it often highlights that managers really don’t understand the processes underneath them, they see a policy in place and it’s on the shelf and it’s wonderful, but at the end of the day they’re not doing their job either.
So the policies again, people say we’ve got to have best practice, but I would argue no, we need best fit for our organisation of the key principles coming through the policies or practices. Are they readily accessible to staff? Do your staff actually know them or can they read them easily? And are they readily understood? It’s no good having policies, which are quite wordy and extensive if no one is going to take the time to read them. And just talk about them at team meetings and that sort of thing. It’s really important to ensure that they are readable, and workable, and practical.
INTERVIEWER: Can you share with us a case example where corruption occurred in the area of procurement?
GEOFF CRAWFORD: This is one of the areas where there are many examples, I’ll just be careful about what I say here, and we’ll just look at one of the ones in particular that’s been in the public sector and I guess one of the more, I’ll use the word, ‘infamous’ cases in recent times involved CenITex.
Cenitex is a Victorian state-owned enterprise established by government in 2008 for the purpose of providing information, communication and technology services to government. An investigation by the Ombudsman found a range of problems coming out of that particular operation. There were a number of contracts that were awarded to companies who were directly or indirectly connected with employees of CenITex and clearly things like conflict of interest was a huge issue. Competitive processes were found to be sham by the Ombudsman. Nepotism, favouritism all the sorts of words you really don’t want to hear, it was all going on there – it’s a very good case study actually.
Appointments were made on the basis of fabricated or false documentation. And some engagements were initiated or overseen by individuals within CenITex who had this clear conflict of interest and, in fact, stood to gain financially on a personal level from the transactions, so they never declared the conflicts of interest in the way they should have, or they were inadequate or misleading. Probably that’s a fair summary of what’s there. We could talk for some time on this particular topic but there’s an example.
INTERVIEWER: What could have stopped it from happening?
GEOFF CRAWFORD: I guess coming back to some of the earlier points we’ve made, significant means of dealing with this behaviour would have been proper probity in place to ensure that CenITex knew who they were dealing with. If they’d have understood who was the recipient of these contracts and that there was some link, hopefully they would not have engaged in the activity. Proper and effective management of conflicts of interest really would have picked up on the issues sooner and that’s often overlooked by management. Yes, somebody’s filled out the conflicts of interest form; great we’ll put it on the file, and move on to the next task, rather than actually looking at it. In our own department we have just recently revamped the conflict of interest documentation, so the managers have a definite responsibility to respond to the declared interest and they have to have a management plan in place to deal with the conflict. Otherwise it comes to our attention in the particular area that I work. Good internal controls were sacrificed in the CenITex example and it’s really important that managers don’t allow what are good controls to be set aside or stepped around. They’re probably the main things that I think.
INTERVIEWER: If somebody suspects that something untoward might be happening in relation to procurement, what should they do?
GEOFF CRAWFORD: There’s a few things in the first instance that can be done. Just make sure of what you’ve seen and if you are concerned still then it’s time to talk to somebody about it. You might want to raise the issue with somebody you trust or authority, as long as you’re satisfied that they are not involved in the behaviour. Importantly, document what you’ve seen in some way; just do a file note or some record of your concerns. Then it’s probably time to report it to an appropriate person in the department about what your concerns are, or indeed report the matter to IBAC, the Ombudsman or Victoria Police. It’s really important to make sure it’s identified and you tell somebody. What you actually see might only be the tip of the iceberg and you may not have the full picture in front of you, however your observations might be really important to something that other authorities are looking at and might be the missing link if you like. So it’s really important to actually put your hand up and say something. I think that probably covers it pretty well.
INTERVIEWER: What common prevention measures can organisations take to ensure procurement activity is resistant to corrupt conduct?
GEOFF CRAWFORD: I guess as a bit of a wrap up, probably a good process of managing conflicts of interest. Not only that they are recorded but they are reviewed and considered by somebody independent to make sure that people aren’t just accepting what is common behaviours. Speaking openly with those involved about potential issues and risks, so talk to your staff about these sorts of things to ensure that it is something they are comfortable raising with you if you want to. Having clear policies around zero tolerance around fraud and corruption, people say sometimes, ‘does it need to be zero tolerance?’. Well, if it’s not zero tolerance what are you prepared to accept and where do you draw the line? I think you also need to have consequences for corrupt behaviour; that people understand that if they do these things that there will be consequences of some sort. And another important thing too is with procurement activity, obviously there are suppliers involved, and it’s really important to think about communicating with suppliers and telling them what your department’s policy is. So if you have a zero tolerance to corruption, let your suppliers know, and hopefully that will actually stop it before it starts if they’re engaged in that sort of behaviour: offering gifts/benefits. Cut it off at its source is the important thing there.
INTERVIEWER: Geoff, thanks so much for talking with me today.
Geoff Crawford: Thank you. I hope this short session will actually help people who are genuine about tackling fraud and corruption with a few ideas. By no means has what we talked about today been all-encompassing and there’s plenty more than can be looked at and read. I’d encourage people to ensure the management is tailored for your own needs. Don’t go and think you can get something off the shelf and it’s going to work for everybody. And as a final message, I’d encourage you not to be complacent about corruption. Don’t be afraid to ask questions of professionals who know what they’re talking about and share with them what you’re seeing and they will be able to help you decide whether it might be a valid concern or otherwise. It’s better to ask the question than let the moment pass and regret it later. Thank you.
INTERVIEWER: That was Geoff Crawford Assistant Director, Fraud Prevention at the Department of Justice and Regulation, speaking about procurement and corruption risks in the public sector.
If you want more information about corruption prevention go to www.ibac.vic.gov.au
