Fraud in Procurement – What Auditors Miss.

The Procurement Fraud Handbook issued by the US General Services Administration (GSA) has a general definition of fraud (emphasis below is mine):

Generally, fraud is defined as a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment, a misrepresentation made recklessly without belief in its truth to induce another person to act, and unconscionable dealing.  A common law act of fraud must contain the following elements:  false representation or concealment of a material fact, knowledge of a statement’s falsity, intent to deceive, reliance by the deceived party, and damage to the deceived party.  The civil False Claims Act modifies this definition to include reckless disregard.

THE FRAUD TRIANGLE
fraud1

According to the Handbook, the above Fraud Triangle was developed by Donald Cressey, a leading expert on the sociology of crime.

I was especially interested in the “Attitude/Rationalization” factor, because the GSA’s Office of the Inspector General states that in an audit,

“rationalization is the element that auditors are least likely to determine… Individuals who commit organizational fraud may have different motives from those who commit fraud for their own individual benefit…  A more subtle motivation relates to increased self-esteem or co-worker/supervisor praise or envy.”

I find that when reading about fraud in procurement, examples usually used are of a contractor’s risk for committing the fraud.  Unfortunately, sometimes the fraud is committed in collusion with government officials.  In my opinion, the latter is the most pernicious type of fraud.

Of Interest: OIG Audits, Inspections and Reports – A Window into Contracting Operations of the US State Department

Some of us have quirky habits.  I happen to love etymology and thoroughly enjoy doing research.  As my children can well attest, I drilled into them never really to believe what they read or are told is fact; always verify the information and go to the source, whenever possible.  Even those “experts” in their fields, whether in government or out, make mistakes or may not know their subject matter as well as they think they do.

One of the things I learnt working on U.S. Government programs, whether they be contracts or grants, is that the Offices of the Inspector General (OIG) of the various government agencies put out some interesting reports that have a wealth of information.

I find these audits/reports very useful to understand:

  • what a particular agency’s strengths and weaknesses might be,
  • what the contractor/grantee can do to help the agency overcome its weaknesses,
  • what the competition’s competencies and limitations are.

Even if the audit or report pertains to a certain agency or distinct area of performance or a specific geographical place, many of the issues usually addressed do apply across the board.

For example, the latest OIG audit on contract invoicing review by the Bureau of Narcotics and International Law Enforcement Affairs (INL) actually explains the invoicing process as well as the regulations that apply to invoicing.   Program implementation benefits immensely from having program managers or contracts representatives aware of these resources.

Of course, keeping abreast of all these resources requires an enormous amount of time devoted outside of the regular work day.  However, if you are quirky, like me, it is extremely rewarding!

 

State’s OIG’s Work Plans.

You may be as quirky as I am, and enjoy knowing what the State Department’s Office of the Inspector General (OIG) plans on auditing/inspecting this year and the next (Work Plans for 2018 and 2019 from the State Department’s OIG).  I have found that, through the years of reading audits and reports from the various US Government OIGs I have learnt a lot, especially how the US Government manages its contracts and personnel, as well as what are some of the contractors’ weaknesses and strengths.

For example, I have often marveled at how bad all parties to a contract can be with poor record keeping, despite knowing that, invariably, a government contract will be audited down the road.  It is amazing to me that we do not make an extra effort to ensure that records are easily accessible.  When working on rule of law programs in other countries, we stress the importance of accountability and transparency, with good record keeping being essential to fight corruption.