How to Spot 4 Common Types of Public Sector Procurement Fraud

By Peter Smith posted 02-26-2017 20:00

  
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Public Procurement Fraud

Stay Informed About Procurement Fraud and Stay Out of Trouble!

Both public sector procurement and private sector procurement are excellent fields full of incredibly talented people, but every so often problems still come up. Fraud isn’t something you want to experience in any field, and procurement is no different. This is the first article in a series that will examine the most common types of public sector procurement fraud to help you keep up-to-date on red flags you should look out for.

In this article, we’ll cover all of the key points about 4 common types of public sector procurement fraud:

  • Eliminating or reducing competition
  • Biased supplier selection
  • “Corrupt” contract negotiation or management
  • Over- or false payment


Procurement fraud looks very similar in public procurement and private procurement, but in either case it is certainly best to avoid.Procurement fraud looks very similar in public procurement and private procurement, but in either case it is certainly best to avoid.

A Quick Note on Public vs. Private Sector Procurement Fraud

Before we jump into dissecting the 4 most common types of procurement fraud, I want to let you in on a secret: the most common types of public procurement fraud really aren’t so different from the most common types of private procurement fraud. Because public and private sector procurement have their own unique qualities, there are some angles that apply particularly when we have a very regulated and structured process, as we often do in public procurement. That being said, the basic principles of procurement fraud are similar everywhere goods and services are being purchased and supplied, regardless of what sector it’s in.

Today, we offer a "fraud classification" model, based broadly on when during the overall procurement process the fraud takes place. We will give just a simple and short description of each type of fraud for now, but we will return at greater length here in future articles and look at each in more detail. Note that in many cases, activities mentioned here will not be inherently fraudulent. For example, not every contract extension is part of a fraud. It may well occur for very good reasons! But equally, it might not, and that’s why it has earned a spot on our list.

Note: For simplicity, we will call the supply-side organisation or individual who is organising the fraudulent activity "the fraudster."


Finding sneaky ways to keep your opponents out of the game isn’t fair in sports, and it isn’t fair in public sector procurement.Finding sneaky ways to keep your opponents out of the game isn’t fair in sports, and it isn’t fair in public sector procurement.

1. You can’t lose if you’re the only competitor, right?

Procurement fraud can happen at any point, even before we get into what is typically considered the procurement process (tenders, evaluation, supplier selection, negotiation). This type of procurement fraud focuses rather simply on eliminating or reducing competition and competitive pressure.

Assuming an organisation stands to benefit from this, clearly eliminating competition both increases their chance of winning the business and may also enable the fraudster to achieve a return that is greater than they could under true open competition. Within this heading, we can define these fraud "species."

  • Single tender: Engineering a situation whereby only one organisation is invited to bid.
  • Extending contracts: Achieving a contract extension instead of a competitive process.
  • Tailoring the specification: In order to favour a particular bidder who may then be the only supplier (or one of a few) who can meet the specification.
  • Discouraging other bidders from competing: By bribing those other organisations, offering them other inducements, or indeed through threats.


It’s fine to stick with your old pals after work, but during the procurement process it’s essential to make unbiased supplier selections.It’s fine to stick with your old pals after work, but during the procurement process it’s essential to make unbiased supplier selections.

2.  Playing favorites when it comes to supplier selection

Once we get into the competitive heart of the procurement process, there are plenty of other opportunities for fraudsters to subvert the fair and open process for their own gain. These routes center around making the supplier selection decision biased in some way towards a particular bidder or bidders. Here are the key areas:

  • Inside Information: Enabling the preferred supplier to position their bid successfully by giving them information other bidders do not have.
  • Design of the evaluation process: Introducing an unfair bias or element of the process to favour one firm (the fraudster).
  • Marking of bids: Biased marking and evaluation of the tenders received to favour the fraudster.

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Not all teamwork is good teamwork-- colluding to generate a corrupt contract is considered fraudulentNot all teamwork is good teamwork-- colluding to generate a corrupt contract is considered fraudulent.

3. Understanding the subtle art of “corrupt” contracts

Corrupt contract negotiation and management can be a difficult type of fraud to catch. It usually involves collusion, with the buyer and supplier agreeing terms, conditions or payments that are not truly competitive and therefore provide some unfair advantage to the fraudster. This can happen even if the supplier (fraudster) won the competition ‘fair and square,’ but it is more usually associated with fraud earlier in the process (e.g. the supplier selection was biased and then the fraudster is offered generous contract terms). Here are the key examples:

  • Non-competitive Ts and Cs: Agreeing contractual arrangements that are not truly competitive or in the contracting authority’s interest; or ignoring contract terms in a manner that favours the fraudster.
  • Contract change: Once supply is underway, agreeing changes to the contract that again are not in the contracting authorities best interests.
  • Contract extension: Either in scope, volume or time, again where this is against the best interests of the buyer.


Over-charging and inaccurate billing are just a few examples of fraudulent procurement activities.Over-charging and inaccurate billing are just a few examples of fraudulent procurement activities.

4. Paying the (wrong) price

Another common public procurement fraud concern involves over-payment or false payment. In these cases, the fraudster basically receives payment that does not genuinely reflect the actual goods or services provided. This can happen with the help of someone from within the contracting authority, or it can be a ‘solo’ fraud committed by the external fraudster. This category probably, we suspect, accounts for the greatest number of frauds committed in the public contracting area. Types of this kind of fraud include:

  • Over-billing quantity (against what was delivered): This includes invoicing for more than the actual amount provided, or for goods or services that were not provided at all.
  • Over-charging: Invoicing at prices higher than agreed in the contract.
  • Over-buying: Collusion between internal staff and fraudster leads to over-buying and invoicing of goods or services that were provided – but were not required.
  • Fake invoices: Invoices submitted from a fraudster that is not a supplier to the contracting authority at all.
  • Payment diversion: Legitimate payment is diverted to a non-legitimate recipient (the fraudster).

Don’t let this tidy little list fool you-- each of these types of public sector procurement fraud can be incredibly complex, and we look forward to diving deeper into each on in future articles. For now, we how this crash course provides some clear examples of the fraudulent activities that can go in public procurement.


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