Analytical Critique of Procurement Fraud in Australia

This report provides an analytical critique of procurement fraud as a significant financial crime affecting the Australian public sector within a global context. It begins by defining procurement fraud, differentiating it from general fraud and highlighting its prevalence, particularly in vendor selection and bidding processes. The report then evaluates the effectiveness of government initiatives, including anti-corruption commissions, codes of conduct, and training programs, alongside legislative and regulatory frameworks. It also considers the impact of international collaborations. The analysis identifies deficiencies in existing approaches and proposes strategies to address them, such as enhancing accountability and transparency. Finally, it recommends further improvements to strengthen current measures, aiming to mitigate the impact of procurement fraud and promote financial integrity in the public sector.

Running head: FINANCIAL CRIME 1
Financial Crime
Student’s (Name)
Institution

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INTRODUCTION
The increase in financial crime over the last decade has been a major concern of
governments throughout the global arena. Even though there are differences in impact of
financial crimes due to diversity of context, the increase in financial crimes has been a great
threat to the development of economies and their stability (Rendon & Rendon, 2015).
Financial crimes can be defined as crimes committed against property. This means that it
is majorly concerned with the change or conversion of ownership of property from a person or
institution to the other with selfish illegal interests (Rendon & Rendon, 2016).
While several initiatives have been taken to curb this menace, more efforts are required
as crime and criminals continue to change. Examples of financial crimes include fraud, money
laundering, tax, evasion, embezzlement of funds, terrorist financing and counterfeiting amongst
others (Tan, 2013).
In the United States 7% of the population were victims to financial crime in 2014. Out of
this population 86% were victims to misuse of their account information where 42% had their
credit card account used wrongfully and 38% had their bank account details misused
(Dhurandhar, Ettl, Graves & Ravi, 2015).
According to statistics money laundering and terrorist financing are the most prevalent
type of financial crime globally (Azmi & Rahman, 2015). This therefore indicates the amount of
efforts by nations and law enforcement agencies which have gone into finding solutions to this
crime on the expense of other financial crimes such as procurement fraud.
According to a global report by PWC, the Big 5 category of crime in the Australian
public sector are procurement fraud, asset misappropriation, bribery and corruption, cybercrime
and accounting fraud. This indicates the need to deal with this crime of procurement fraud as a
major issue in the Australian public sector ((Rahmawati, Yaqin & Sarno, 2016).
This paper seeks to analytically critique procurement fraud as a financial crime that has
led to the failure of companies and governments in the Australian public sector in relation to the
global context in order to provide a probable solution to this crime. In coming up with this paper
several peer reviewed journals, books, articles and professional opinions have been consulted as
acknowledged in the reference.

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DESCRIPTION OF PROCUREMENT FRAUD
In order to clearly understand this type of crime it is necessary to understand the meaning
of words forming it which contribute to its overall meaning. The phrase procurement fraud is
composed of two words procurement and fraud, let us look into the meaning of these words
respectively.
In a limited perspective procurement can be defined as the practise of acquiring, buying,
purchasing or obtaining goods and supplies from an organization or an individual in accordance
with ones needs. In a broader perspective procurement is viewed as a larger business process that
involves various other business processes within it (Chang, 2013).
With this procurement can be defined as the engagement in coming up with
specifications, management of the process of analysis into these requirements, carrying out
research, negotiating with supplier ,managing the signing of contracts and other agreements and
ensuring that the purchases are successfully delivered to the company.
With this perspective procurement is not just a single event that is carried out once but a
process that has to undergo certain procedure. In most organization there is a department which
does this whole procurement called procurement department led by a procurement officer.
Fraud is the act of using deception in order to gain or benefit from a particular situation.
Fraud can also be defined in the following ways: an individual who tries to assume an identity
that does not belong to them, unlawfully deceiving others in order to gain from the deception
indirectly or directly, lastly it can be defined as intentionally deceiving a person so that they can
leave something valuable that they have (Castillo & Flanigan, 2014).
Examples of fraud are identity theft, pyramid schemes, elimination of debts, charity
funds, insurance frauds, credit card fraud with the most dominant fraud being internet sales and
deception. The Fraud Act 2006 characterises three elements of fraud which are: false
representation, failure to disclose and abuse of position (Matthew, Patrick & Denise, 2013).
With this understanding of procurement and fraud we can now define procurement fraud
as unlawfully altering the process of procurement in order to acquire goods or service or both in
order to obtain unfair advantage, it the process of illegally and dishonestly acquiring advantage
over through manipulation and ignorance of important procurement processes by procurement
officers or contractors and any other person who is involved in the process of procurement.

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Procurement fraud can also be defined as intentional deception with the purpose of
influencing avenues of property pay in order to make financial gain or induce a loss to the person
who fraud has been committed against (Gunduz, & Önder, 2013).
In the Australian public sector 28% of crimes are procurement fraud while other frauds
such as tax fraud occupy 3% and other crimes. According to a survey report by PWC,
governments globally lose approximately £2.9 trillion yearly on procurement fraud and out of
69% asset misappropriation, procurement fraud forms 29% while corruption forms 27%. This
crime in the Australian public sector was found to largely occur during the vendor selection
(61%) at the bidding process (45%) and during delivery (43%) (Jackson, 2013).
Some of the key indicators of the occurrence of procurement include:
Purchases of poor-quality goods and services : When the procurement officers are no
longer concerned with high quality good and services relative to the amount they have received
from the management in purchasing such services there may be evidence of them benefiting
from an arrangement with the service provider.
Unnormal high prices: Increase in prices by the suppliers should be documented and
explained by the supplier, else there may be cases of procurement fraud where the prices are
extremely high compared to prices of the same quality by different suppliers.
Reluctant to replace supplier: When the procurement officers continue to hold on to a
specific supplier even when there are cases of poor-quality delivery , there should be an
investigation on whether there is a deal between the supplier and the procurement officer.
Exclusive Communication with supplier ; A specific individual being the sole person who
wants to communicate with the supplier could also be a sign of procurement fraud indicating that
there may be an arrangement with the supplier that no one should know about.
Reports and Feedback : This being the best way of knowing about cases of procurement
fraud entails, obtaining information from other employees in an organizational setting about
another employee who is accused of committing procurement fraud.
Procurement fraud has been rampant in the Australian public sector as compared to the
private sector due to reasons such as less supervision on financial statements and more avenues
of carrying out procurement fraud. Similarly, procurement occurs in both federal and state level
due to the presence of institutions that acquire their products using procurement procedure.

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EFFECTIVENESS OF INSTITUTIONS
While this crime escalates globally, it has received minimal attention as it so deserves.
Let us have a look at initiatives and attempts in dealing with this crime in the Australian public
sector in relation to other global initiatives.
Government Initiative
Australia has put up several initiatives in dealing with procurement fraud in, this
initiatives include:
Establishment of state anti-corruption commissions who are meant to deal with crime
such as this, this commissions include, Southern Australia Independent Commissions against
Corruption, Western Australia Corruption and Crime Commission, New South Wales
Independent Commissions against Corruption, Queensland Crime and Misconduct Commission,
Victoria Independent Broad Based Anti-Corruption Commission and Tasmia Integrity
Commission.
The Anti-Corruption Strategy of the Australian Federal Procurement Agency has
introduced code of conduct for officials in the procurement public sector. This officials must
abide by this code by which if they don’t relevant penalties apply.
The Australian Federal Procurement Agency also offers training to procurement officers
in charge of such departments in regards to the code so that they can learn how to handle the
procurement process in relation to the code of conduct.
Some of the objectives of this government initiative include: Coming up with specific
procedures defining how the procurement process is done, integrate normal day work of
procurement officers with principles of integrity and transparency, raise awareness to staff
regarding procurement fraud and measures of dealing with those who violate it.
Most governments have introduced a set of principles that every procurement officer is
obligated to heed to, according to the governments procurement policy, examples of these
principles include integrity and transparency (Dhurandhar, Ravi, Graves, Maniachari & Ettl,
2015).

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Canada has got a code of procurement that dictates the behaviour and expectation of
procurement officers and ways of dealing with those who violate the crime. Mexico has Good
Practices on Public Procurement related to the exploration and extraction of hydrocarbon with
the same purpose as the one for Australia, Brazil also has a portal where the public can raise
alarm in the case of suspicions of procurement fraud. France also offers training for procurement
officers (Levi, 2016).
All this efforts have had a positive influence in the reduction of financial crimes, but,
they have not had a significant impact in the reduction of procurement fraud. Even though the
index of procurement fraud deceased from 2014, more work needs to be done by the Australian
government since it is part of the big 5 crimes in Australian public sector.
Assumptions have been made in regards to the effectiveness of Anti-Corruption Bodies,
this assumption is that there is no occurrence of corruption amongst this bodies and other
institutions. In this regard there should be an overall body that this anti-corruption bodies report
to in order to increase their reliability.
The accountability framework is not only the assumption, but the capability of the public
procurement officers in work organization is also part of a major assumption by the government.
Most initiatives are centred on transparency of procurement process focusing on the people while
there is need to look into work organization which may result to financial record losses
indicating procurement fraud.
Legislation
Regulation is one aspect that the government and other organization use to facilitate
control within its sovereignty. These regulations can be expressed in form of Legislations and
other bodies granted the power to achieve a specific purpose. Public procurement has been
largely legislated with such efforts dating back to 1777 in the United States (Murray, 2014).
In Australia procurement fraud is classified under bribery and corruption laws and
regulations, whereby it is addresses on state level being a form of corruption. In 1999 Australia
ratified Organization for Economic Cooperation and Development (OECD) whose role was to
deal with bribery and business transactions. Being a party to United Nations Convention against
Corruption (UNCAC) of 2003 it has legislations that deal tackle any fraud in procurement as a
business transaction also included in Criminal Code Act of 1995 (Sabau, 2012).

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Legislations on procurement have section that directly refers to procurement fraud though
in some cases it is referred to as corruption. Some of these legislations are Fraud Act 2006,
Bribery Act 2010, Program Fraud Civil Remedies Act, Public Procurement Law, Public
Procurement and Disposal acts and Procurement Fraud Prevention Act in the United States
amongst other procurement fraud acts in the world (Stamler, Marschdorf, & Possamai, 2014).
This legislation define procurement, procurement procedure and policies and they discuss
violation of procurement through and its penalties. Even though several legislations have been
drafted in the area of procurement, very few countries have specific legislations that are mainly
focused on procurement fraud.
From the above discussion, it is clear that several governments have addressed
procurement fraud even though they do not exactly use the term “procurement fraud” rather it is
addressed in criminal laws and corporate laws as corruption. There is however the need to come
up with legislation specifically referring and targeting procurement fraud as in the case of United
States.
Regulatory Instrument
There are a number of regulatory and legal instruments that have been taken in order to
deal with procurement fraud including legislations, bodies, contracts, ministry departments and
presidential decrees. As mentioned above Australia and individual states have put in place
legislations that dictate the occurrence of procurement and other dynamics involved.
Other means that regulate procurement fraud include, the introduction of specific bodies
whose purpose is to investigate the act of fraud and any other corruption related crime within the
business sector in a country, these bodies might have different names depending on the country
in question. Examples of these bodies include: Fraud and Corruption Commissions, Organization
for Economic Cooperation and Development (OECD), United Nations Procurement Division and
Nigerian Procurement Body amongst others (Dzomira, 2014).
Other regulatory instruments have been policies in regard to procurement fraud, these
policies have been developed by department in state ministry concerned with business whose
role is to monitor business transactions, contracts and financial statements in order to avoid
procurement fraud.

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Use of contracts has also been key as a regulatory instrument, contracts clearly dictate the
quantity, price and year of services or goods and other detailed information which are relevant to
the business transaction. These details reduce procurement fraud by clearly indicating the
important factors that cannot and should not undergo change until the contract has expired. In
addition , the contract may need several approvals reducing any fraud due to several supervision
(Opperman, 2014).
One thing that remains clear is that not much regulatory instruments have been put in
dealing with procurement fraud as a global trend apart from the existing legislations and policies.
The importance of the present regulatory bodies cannot be ignore either since in order to
eradicate this crime more regulatory measures are needed. It is not just enough to have this
bodies but they should also be in their best performance I ensuring that they succeeded in
achieving their purpose.
Investigative Approaches
Identifying procurement fraud is the first step when trying to solve this crime in an
organization or a state whether in the public or private sector (Westerski et al. 2015). It should be
noted that this identification is based on factors that were mentioned above in this paper as
indicators of procurement fraud. The Anti-Corruption Agencies together with the government of
Australia have established various investigative approach.
There have been establishments of websites where people are expected to report or
inform the concerned department on procurement fraud, this helps the government of states to
determine areas of suspicions that they should investigate.
There have also been appointed bodies whose task is to investigate and report these issues
on procurement fraud as per the established regulations regarding the same. Another
investigative approach has been the introduction of computer systems that are able to detect
cases of financial rigging that otherwise may turn out to be procurement fraud.
There is a constant consultation with experts regarding areas that require concerns that
need to be dealt with. Some of these consultants include business auditors who go through
financial statements in order to ensure that they are true record and a true reflection of financial
processes and condition of the company as per the allocated budget.

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Other investigative approach has been the use of law enforcement agencies that handle
procurement fraud as crimes in countries where corruption and fraud are considered as criminal
offenses as mentioned earlier in this paper.
Several investigative approaches have been put in place with the purpose of identifying
cases of procurement fraud, efforts should therefore be made in discovering better approaches
but most importantly ensuring that the approaches that are present are maximumly utilised in
identifying and dealing with procurement fraud.
Internationally Coordinated Approaches
The need to eradicate procurement fraud has been noticed globally with states and
international organizations such as United Nations, International Monetary Fund (IMF), World
Bank, International Labour Organization and Food and Agriculture Organization amongst other
international organizations.
Most of this organizations have responded to this crime through policies and legislations.
United Nations for example have the policy United Nations Convention Against Corruption
(UNCAC), United Nations Convention Against Transnational Crime (UNTOC) and UNDP Anti-
Fraud Policy (Tickner, 2017).
These international organization have bodies that carry out the procurement process and
other bodies that carry out auditing on the procurement processes that could lead to procurement
frauds. The European Union also has an Anti-Fraud Commission whose purpose is detect and
address issues that are related to fraud.
One major international approach to procurement fraud is the generation of annual
procurement reports and public declaration of call for orders. The annual procurement frauds
enable experts to scrutinize the documents that have been presented for any cases of procurement
fraud. The public call for orders reduced the procurement fraud associated with false prices and
fraud in the ordering process.
Industry Response
The impact of procurement fraud in the industry has been unpleasant with huge loss of
funds and collapse of companies. As a result, several approaches have been put in place by the
government, the private sectors and international organizations to deal with this crime.

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The industries response has been positive with organizations both in the private and
public sectors of the government agreeing to abiding by the principles of procurement and
legislations in place regarding fraud.
There has also been vast support for audit on financial records by institutions just to
ensure that they are not part of procurement fraud, professionals in the financial industry have
agreed to be trained on detecting and dealing with procurement fraud, institutions continue to
engage in generation of procurement reports and announcement of orders in order to show the
aspect of transparency and integrity in their financial dealings (McCue, Prier & Swanson, 2015).
Recommendations on dealing with procurement fraud
In dealing with procurement fraud the following strategies can be implemented:
Training staff who make financial decision in the company on ways of identifying
procurement fraud: Training staff is very important since in order to deal with this crime, it has
to be first identified ,training the staff will enable them to detect even tiny cases of procurement
fraud from red flags such as very close relationship between the person in charge of deliveries
and the supplier (Caulfield, 2014).
Ensuring that the risk of procurement fraud is acknowledged in the company risk register
and that there is a person who is in charge of the procurement department. By doing this there
will be a person responsible for supervising other people in the procurement department ensuring
that every order and delivery are as per the expected standards and quality. The presence of a
supervising manager also ensures that there is verification of the whole procurement process in
avoiding procurement fraud. Placing the risk of procurement fraud on the company risk register
will see strictness and cautiousness when handing procurement process (Maulidi, 2017).
Triple or double authentication should be carried out to ensure that the recordings of the
procurement are at per: This three-way match or two way much will check the details in
documentation to ensure that they are aligned. These documents include requisition, purchase
order and invoice. There should also be a check on the delivery note and the contract schedule if
present to avoid small accidental mistakes that could be on the side of the supplier which may
suggest the possibility of procurement fraud.
Removing the privileges of staff or individuals who are no longer part of the procurement
team: This approach is good especially in companies where staff members are shifted form one

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department to the other annually or where the staff has left the company. It is good to revoke
their privileges of carrying out procurement process in order to avoid personal gain and blaming
the new staff in that department (Ambe, & Badenhorst, 2012). It also presents the new staff with
a clean record to begin from.
Following strictly the procurement procedure: By following the procurement procedure
strictly there will be no action in the procurement process that is not documented thereby
avoiding procurement fraud unlike where there are no documentations indicating how the whole
process has occurred. Strictly following the procurement procedure also enable the company to
be able to track finances from the recorded financial records.
Enforcing authorisation within the procurement department: This entails a situation
where a single member in the whole department is restricted to a role in the procurement process,
so that the procurement proves is completed after the combined efforts of several individuals.
This is very important because a single individual is stopped from carrying out the procurement
process in order to benefit from individually from the process.
Implementing a limit on costs that require approval and permission: This entails setting
limitations on financial use when purchasing goods and services so that at a particular point the
supervisor or the manager has to be consulted. This move helps in dealing with individuals who
purchase low quality items for high amount of money that does not match the quality of the
items in question.
Carrying out scheduled audits: This perhaps might be the most important part in
determining procurement fraud, it is where external and internal auditors go through the
procurement records in ensuring that there is no procurement fraud. It can be scheduled or abrupt
and should be detailed so that no details are left out.
Lastly the company or organization should put in place procurement or any other kind of
corruption policy and control guidelines which will help the staff in procurement office
understand the expectations of the organization towards them. It could be a framework called
Procurement Code of Conduct with subsection indicating definitions, code and penalties of
violating the conducts.
Conclusion
In conclusion, procurement fraud is a global financial crime that requires solution even as
more and more companies are shifting their business to be at per with the current technology in

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the business market (Rodriguez, 2013). While several efforts and initiative have been put into
place in dealing with this crime such as policies and legislations, more efforts need to be put into
place for this crime is growing in a very import sector pivotal to the governments operation
(Dai & Li, 2016).
Other options that could be put to practise in dealing with this crime include more and
more policies, training staff on procurement fraud detection and prevention, implementing three-
way authentication and verification, ensuring that the procurement process is strictly procedural
and allocation of duties and limits amongst other recommendations as discussed.
Several measures can be undertaken to deal with the issue of procurement fraud in their
areas of occurrence, however, initiatives can also be undertaken to ensure that the whole
organization is in support of counter procurement fraud activities. The fight in eradicating
procurement fraud as a financial crime is not the task of an individual person rather it requires
combined consistent efforts.