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W102: Procurement Fraud Prevention and Internal Controls
Pleased to introduce the following panel members
– Tom Caulfield, Executive Director Council of the Inspectors General on Integrity and Efficiency
– George D. Strudgeon, Audit Director - Compliance Assurance, Virginia Auditor of Public Accounts
– Matthew Harris, Assistant Special Agent, U.S. Postal Service Office of the Inspector General
When you press ………….
And money comes
out
We need to mitigate our risk
Risks Concepts• Risks are those activities that could impede the
efficient and effective accomplishment of objectives
• Risks are identified and assessed for relevance• Risks are analyzed for significance• Controls are then selected to mitigate significant
risks• Controls must be periodically tested to ensure
that they are in place and working• Controls must evolve accordingly
Polling Question 1From a contracting perspective (pick as many as you’d like) those areas that represent the highest fraud risk in your organization
1. Requirements
2. Contract Documentation
3. Contract Type
4. Source Selection
5. Contract Pricing
6. Oversight and Surveillance
7. Inherently Governmental
8. Property Accountability
9. Award Fee
10. Financial Management
PROCUREMENT FRAUD PREVENTION AND
INTERNAL CONTROLS
Procurement Integrity is the state or condition where all phases of obtaining goods and services are performed:
honestly, fairly, impartially, legally, and appropriately transparent.
Free from Procurement Fraud and Abuse
Polling Question 2
• Do your organizations produce on-going analysis/reporting, metrics or other identified indicators to mitigate risk.
• Yes• No
PROCUREMENT FRAUD PREVENTION AND
INTERNAL CONTROLSPROCUREMENT INTEGRITY
CONTROLS
“the aggregate of the organization’s people, processes, procedures, and management systems that are uniquely designed to the organization and provide reasonable assurance regarding the prevention, deterrence, detection, and prompt reporting of procurement abuse, fraud, or non-compliance within organizational procurements*”
PROCUREMENT INTEGRITY CONTROL SYSTEM™
* Procurement Integrity Consulting Services, LLC
“the aggregate of the organization’s people, processes, procedures, and management systems that are uniquely designed to the organization and provide reasonable assurance regarding the prevention, deterrence, detection, and prompt reporting of procurement abuse, fraud, or non-compliance within organizational procurements*”
PROCUREMENT INTEGRITY CONTROL SYSTEM™
* Procurement Integrity Consulting Services, LLC
“the aggregate of the organization’s people, processes, procedures, and management systems that are uniquely designed to the organization and provide reasonable assurance regarding the prevention, deterrence, detection, and prompt reporting of procurement abuse, fraud, or non-compliance within organizational procurements*”
PROCUREMENT INTEGRITY CONTROL SYSTEM™
* Procurement Integrity Consulting Services, LLC
Procurement Integrity Controls must operate within an
environment committed to procurement integrity!
Procurement Integrity Controls can be broadly classified into two categories:
Prevention – focused on preventing inappropriate events.
Detection – focused on detecting inappropriate events. Operationally focused are ones functioning within the procurement processes and directly affect each individual procurement (i.e. segregation of duties).
Governance focused are ones that facilitate the environment for which procurements' occur and function outside of the various procurement processes (i.e. procurement fraud training).
Operational PIC - Inside the Procurement Processes
Procurement Manual
Clear and readable manual/guidance/instruction
Reference to PI (honest, fair, legal, & impartial)
Designating someone responsible to champion these items
Description of each procurement type with decision points and responsibility
Monetary thresholds for all procurement types clearly identified Etc. Etc.
Segregation of Duties
Clear description of original need/requirement - requester & approval
Verification of requirement's description - author & review
Verification of specification's description - author & review
Verification of advertisement synopsis - author & review
Change order or modification - requester & approval
Authorizing for follow-on options - requester & approval
Using special procurement authority - requester & approval
Any exception to policy - requester & approval
Any exception to contract requirements/scope - requester & approval
Any equitable cost adjustment - requester & approval
Approval on deviation from original cost estimates - requester & approval
Operational Procurement
Integrity Controls
Operational PIC - Inside the Procurement Processes
Procurement Manual
Clear and readable manual/guidance/instruction
Reference to PI (honest, fair, legal, & impartial)
Designating someone responsible to champion these items
Description of each procurement type with decision points and responsibility
Monetary thresholds for all procurement types clearly identified Etc. Etc.
Segregation of Duties
Clear description of original need/requirement - requester & approval
Verification of requirement's description - author & review
Verification of specification's description - author & review
Verification of advertisement synopsis - author & review
Change order or modification - requester & approval
Authorizing for follow-on options - requester & approval
Using special procurement authority - requester & approval
Any exception to policy - requester & approval
Any exception to contract requirements/scope - requester & approval
Any equitable cost adjustment - requester & approval
Approval on deviation from original cost estimates - requester & approval
Governance Procurement
Integrity Controls
Operationally focused are ones functioning within the procurement processes and directly affect each individual procurement (i.e. segregation of duties).
Governance focused are ones that facilitate the environment for which procurements' occur and function outside of the various procurement processes (i.e. procurement fraud training).
Polling Question 3
• Has your organization developed and deployed an exception manage tool to track and document those activities targeted as high risk?
• Pick yes or no.
USING DATA ANALYTICS TO PREVENT AND DETECT
PROCUREMENT AND CONTRACT FRAUD
ASSISTANT SPECIAL AGENT IN CHARGE, MATTHEW D. HARRIS, PHD
OIG Contract Fraud Program
OIG Contract Fraud Program
When can Contract Fraud Occur?
Red Flags
Examples• Lawn service and you’re cutting the grass. • Cleaning and no one has shown up in weeks. • Snow removal and you’re relying on the sun.• Vehicle washing, but your trucks are always dirty.• Pest removal, but exterminators either never come or they
are ineffective; District still pays them. • Trash removal, but contractor comes at his convenience and
charges Postal Service for full load. • Fleet fuel and the costs suddenly skyrocket with all charges
at same station, some on Sundays or holidays. • HVAC service, but your A/C or boiler never seems to work,
despite visits from vendor
Information that can assist in determining fraud• Name of Contract• Date of Bid Opening• Winner and Winning Bids• Losers and Losing Bids• Engineer’s Estimate• Who is Signing the Bid and from what location• Subcontractor Information• Pre-bid Meetings• Time Stamp on Bids• Fax on Bids• Email Addresses• All Address Information
Remedies
Common Contract Fraud Violations
Case Examples
Case ExamplesFive VMF supervisors accepted bribes in exchange for directing $13 million in maintenance work to a contractor. Bribes to one supervisor included thousands of dollars in drinks and lap dances at a local strip club, a $3,000 paver patio installed in his backyard, and the services of a prostitute on a weekly basis. Bribes to another supervisor included more than $65,000 in cash, thousands of dollars in free service work on cars, and a custom-modified, high-performance Ford Pinto
How to we prevent it?
• Referrals to audit for lower dollar cases• Referral to management to improve
processes• Use investigative outcomes to show
systemic failures• Catch it at its earliest stages.. Data
Mining and Data Analysis
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Minimizes manual analysis with computer generated leads to ensure fraud is identified timely, and leads are actionable.
Tripwire Concept
A tripwire is anomaly detection tool creating a report and notifications after being triggered by a predefined event or set of conditions
The tripwire teams are made up of Data Mining Specialists and Investigative Subject Matter Experts
Lead SME’s assigned to work with CAPE to enhance data analysis and leads.
Multi-disciplinary success
Interdisciplinary success
Contract Fraud Tripwires- Analytics
Employees living with or close to or contractor payment address
Other planned Tripwires
Other data mining projects
• Highway Contract Routes • Extra Trip Analysis • Identify high volume of extra trips by
employee, facility, HCR, and route.• Failure to pay fringe benefits
Other data mining ideas
Polling Question 4
Select from this list those indicators your office considers to identify risk before a Contracting audit:
1. The senior leadership tends to transfer to the same office2. Contracts have significant differences between original
award amounts and current or closed amounts3. Contracting award types appear abnormal (for example,
little competitive bidding)4. Contracts have been awarded to those contactor that may
have had questionable relationships with other government agencies
5. Options and extensions beyond contract performance period
Results
• 158 less hours to close a CF case using Tripwire
What does data show us?
• Cases opened using data analytics
Shorter time from case opening to resolution Higher resolution rate in cases Identifying better cases Spend less man hours investigating cases Improves agent efficiency Higher financial impact from cases using RADR or Tripwires
FRAUD HAPPENS
SO PLAN FOR IT
________________________________________________________________________________________
George D. Strudgeon, CPA, CGFM, CGMA, MBA
Audit Director, Auditor of Public Accounts
225-3350 ext. 339
LinkedIn: George D Strudgeon
Outline
Virginia: Report reasonable possibility of fraud to Auditor of Public Accounts, State Inspector General, and State Police (§30-138 Code of VA)
Federal: Non-Federal entity reports criminal fraud to feds (§200.113 Uniform Grant Guidance)
Virginia: Report convicted felony to Virginia Retirement System (§51.1-124.13 Code of VA)
“Managers may perceive a conflict between their priorities to fulfill the program’s mission, such as efficiently disbursing funds or providing services to beneficiaries, and taking actions to safeguard taxpayer dollars from improper use.” GAO
Recap
Plan,Report,
andProvideServices
FRAUD HAPPENS
SO PLAN FOR IT
________________________________________________________________________________________
George D. Strudgeon, CPA, CGFM, CGMA, MBA
Audit Director, Auditor of Public Accounts
225-3350 ext. 339
LinkedIn: George D Strudgeon
