What are the procurement fraud red flags to look out for?

By Angela Canning, Audit Director

Auditors are naturally sceptical people. We are mindful that having systems and processes in place to safeguard public money and deter fraud doesn’t always mean that procedures can’t break down, aren’t kept up-to-date or that people won’t try to find ways to cheat the system for their personal benefit.

The current squeeze in the public purse has led to situations where fewer staff have more responsibilities and less time to do the checks and balances that they used to. Examples are a lack of segregation of duties, an inappropriate level of review or oversight, reconciliations not being carried out and weaknesses in budgetary controls procedures. Having internal controls in place – and working – is important and can help to deter, prevent and detect fraudulent activity.

Defrauding the public purse affects us all – it means there’s less money available for things like buying new medical equipment, providing social care to vulnerable people or paying for more classroom assistants.

Procurement can be a particularly attractive area for fraudsters. This is because complex processes are involved, and contracts are often of a high value. Procurement fraud is difficult to detect and is not always reported, making it difficult to measure the extent of the problem. Some high profile cases have hit the Scottish public sector such as the cases in Midlothian Council and City of Edinburgh Council.

Recently, colleagues in Audit Scotland attended a workshop on Counter-fraud in Procurement which was led by DI Ricky Hutton from Police Scotland’s Safer Communities Division. DI Hutton leads on activity aimed at diverting and deterring criminal activity and works closely with other public sector partners in building counter-fraud activity and awareness. Along with his colleague DC Jamie Sinclair, DI Hutton gave us a great insight into serious organised crime in Scotland, with a particular focus on recent cases involving procurement fraud in the public sector.

Discussion included the ‘red flags’ which can sometimes raise our suspicions – that feeling in your gut that all might not be as it should – and where we might want to delve a little deeper.

Audit Scotland and Police Scotland have developed a document which highlights some red flags in procurement activity and the controls that can help to prevent fraud. It includes flags like close relationships between contractors and officers, contractors providing inappropriate gifts to officers, invoices not matching contracted costs and the same person authorising and paying invoices.

We’ve published the guide on the Counter-fraud hub on Audit Scotland’s website. As well as being a useful tool for auditors, we hope it will be helpful for public bodies when reviewing their own risks and controls.

Angela is an Audit Director and leads on our counter-fraud work. You can find out more about Audit Scotland’s counter-fraud work on our website.

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