Measures for Identifying and
Reducing Fraud and
Corruption Risks in Public
Procurement
OLAF.D.2 – Fraud Prevention, Reporting and Analysis Unit
Budapest – 11 December 2015
Costs of corruption
 Public procurement = about 20% GDP in the EU
(2010: € 2.4 trillion)
 Scope of the study: 8 Member States and 5 sectors
 Direct cost of corruption <2.9% , 4.4%> value of
procurement published in OJ
OR
 Between EUR 1 470 million and EUR 2 247 million
2
Costs of corruption
Clean projects
5% loss
Corrupt/grey projects
18% loss
Average loss attributable to corruption: 13%
3
Costs of corruption
Direct costs of corruption in public procurement
Sector
Road & rail
Direct costs of corruption
(in million EUR)
% of the overall procurement value
in the sector
in the 8 Member States
488 –755
1.9 % to 2.9%
27 –38
1.8% to 2.5%
830 - 1 141
4.8% to 6.6%
26 –86
4.7 % to 15.9%
99 –228
1.7% to 3.9%
Water & waste
Urban/utility construction
Training
Research & Development
Table: costs of corruption by sector (Source: PwC)
4
Types of corrupt practices
 Bid rigging
 Kickbacks
 Conflict of interest
 Other – including deliberate mismanagement/ignorance
5
Types of corruption - analysis
Type of corruption by sector
Bid rigging
Kickbacks
Conflict
of interest
19
14
11
3
Road & Rail
Water & Waste
Training
10
15
1
8
6
3
4
3
2
1
0
1
Research & Development
12
4
2
0
Total*
57
35
22
5
Sector
Urban/utility construction
Deliberate
mismanagement
Type of corruption by Member State
Member State
France
Hungary
Italy
Lithuania
Netherlands
Poland
Romania
Spain
Total*
Bid rigging
6
9
12
11
0
10
4
5
57
Table: types of corruption identified (Source: PwC)
6
Kickbacks
3
2
3
2
0
6
8
11
35
Conflict
of interest
5
4
4
1
1
2
4
1
22
Deliberate
mismanagement
1
0
0
1
0
1
1
1
5
Hungary in the reports




Public Procurement in Hungary
5.66% of GDP (2011)
4,7% (2012)
8,2% (2013)
 General perception of corruption: 89% of Hungarian respondents
says it is widespread (EU average: 76%)
 47% of the Hungarian businesses state that corruption is
widespread in public procurement managed by national
authorities (EU average: 56%)
 59% of businesses in Hungary see corruption as an obstacle for
doing business in their country (EU average: 43%)
7
Hungary in the reports
Percentage of the respondents whose companies participated in
public tenders for in period 2010-2013 perceived below listed
practices as widespread:
64% reported specifications tailor-made for particular companies
48% observed abuse of negotiated procedures
42% noted conflicts of interest in the evaluation of the bids
58% reported collusive bidding
48% found selection or evaluation criteria unclear
42% considered abusal of emergency grounds to avoid
competitive procedures
 48% reported involvement of bidders in the design of the
specifications






2013 Eurobarometer business survey on corruption
8
Reactions
9
Fraud prevention tools – Red flags
Red flags are:
Warning signals, hints, indicators of possible fraud
The existence of a red flag does not mean that fraud exists but that
a certain area of activity needs extra attention to exclude or confirm
potential fraud.
10
Fraud prevention tools – Red flags
Rigged specification:
 only one or abnormally low number of bidders respond to
request for bids;
 similarity between specifications and winning contractor’s product
or services;
 complaints from other bidders;
 specifications are significantly narrower or broader than similar
previous requests for bids;
 unusual or unreasonable specifications;
 the buyer defines an item using brand name rather than generic
description.
11
Fraud prevention tools – Red flags
Collusive bidding:
 winning bid is too high compared to cost estimates, published
price lists, similar works or services or industry averages and fair
market prices;
 persistent high prices by all bidders;
 bid prices drop when new bidder enters the competition;
 rotation of winning bidders by region, job, type of work;
 losing bidders hired as subcontractors;
 unusual bid patterns (e.g. the bids are exact percentage apart,
winning bid just under threshold of acceptable prices, exactly at
budget price, too high, too close, too far apart, round numbers,
incomplete, etc.);
12
Fraud prevention tools – Red flags
Conflict of interests:
 unexplained or unusual favouritism of a particular contractor or
seller;
 continued acceptance of high priced, low quality work etc.;
 contracting employee fails to file or complete conflict of interest
declaration;
 contracting employee declines promotion to a non-procurement
position;
 contracting employee appears to conduct side business.
 close socialisation between a contracting employee and service or
product provider;
 unexplained or sudden increase in wealth by the contracting
employee;
13
Fraud prevention tools – Red flags
Manipulation of bids:
 complaints from bidders;
 poor controls and inadequate bidding procedures;
 indications of changes to bids after reception;
 bids voided for errors;
 a qualified bidder disqualified for questionable reasons;
 job not re-bid even though fewer than the minimum number of
bids were received.
14
Fraud prevention tools – Red flags
Split purchase:
 two or more consecutive, related procurements from the same
contractor just under competitive bidding or upper level review
thresholds;
 unjustified separation of purchases, e.g. separate contracts for
labour and materials, each of which is below bidding thresholds;
 sequential purchases just under the thresholds
15
Reactions
16
Fraud prevention tools – Practical guides
1. Detection of forged Documents in the field of structural actions.
A practical guide for managing authorities.
2. Identification of conflict of interests in public procurement
procedures in the field of structural actions.
3. Handbook on the role of auditors in fraud prevention and
detection.
4. Guidelines on the National Anti-Fraud Strategies.
All documents is available in all languages on SFC 2014.
https://ec.europa.eu/sfc/en/2014/anti-fraud
17
Fraud prevention tools – Practical guides
Practical guides in preparatory phase:
National Anti-Fraud Strategy in practice
Identifying conflict of interest situations in the Agriculture sector
18
Discussion
19
Thank you for your participation!
Frank Michlik – Head of Unit
OLAF.D.2 – Fraud Prevention Unit
OLAF - European Anti-Fraud Office
European Commission
Rue Joseph II 30
B–1049 Brussels
http://ec.europa.eu/anti_fraud
20