Corruption and Collusion in Public Procurement: Tools for Investigation and Enforcement

Any county, government or an international organization faces the challenge of corruption in procurement. We naively believe that corruption and collusion represent the problem only for developing countries; whilst the continuous discovery of corrupt and fraudulent practices of the biggest corporations from the Western countries show in practice the difference in perception and reality. Even in the European Union corruption is still present and significant. According to the recent study of the European Parliament, corruption costs the European Union as much as €990 billion per year, representing almost one third of the value of the intra-EU exports per year.

What is commonly understood is that corruption in procurement needs the collusion of companies and individuals whom are intent on defrauding the system and twisting procurement rules to ensure that outcomes are favorable and that nepotism is allowed to prevail – no matter the cost to the taxpayer – and usually resulting in massively substandard quality of delivery.

Shopping malls collapse, roads become unusable, and countless stores of useless ‘kit’ line government warehouses with workers left wondering why things were ever purchased. Even though the numbers may only estimate the extent of the problem in both public and private transactions, such a frightening ratio suggests a solution is badly needed.

One of the biggest areas where corruption and collusion are present and represent a challenge not only the rule of law but also efficient functioning of a state, governmental agency or an international organization is public procurement. Public procurement comprises government purchasing of goods and services required for State activities for public money. If we look at the European Union, each year over 250,000 public authorities spend around 14% of the EU GDP (around €2,000 billion).3 The number of authorities and the amount of money spent is simply hard to imagine. Being able to set up the processes to discover collusion and corruption in any state and at any point within the public procurement procedure is in the same way beyond imagination. Yet, we contend, it is far from impossible.

Red flags are usually present from the first moment. Based on existing administrative and criminal investigations, common indicators of corruption and collusion in public procurement already exist. Simple systems to ward off the obvious have been in existence for some years and, in this regard, we see procurement procedures being complicated year on year to make room for these occurrences. But, robust solutions created by sophisticated software engineering and advances in analysists are able today to filter out red flags and present viable indicators of risk.

Due diligence and risk monitoring, the pillars of anti-corruption law in most countries are thus complimented by technological capabilities that can harness existing data to discover – and in some cases predict – where concerns will arise at almost any stage of a procurement process. Technology exists today to that brings immensely competent and rapid mechanisms capable of analysis of proprietary data to the point where corruption and collusion could be revealed to the analyst just by understanding how business networks are put together. Such tools and approaches should allow states, as well as regional and international organizations, to minimize the presence of corruption and collusion. However, it must be emphasized that the technology alone is not the cure. Rather, legal and regulatory mechanisms need to be put in place to usher in the lawful use of technology – which subsumes the political will to name the elephant in the room.

Authors: Dr. Alexandra Horváthová, and Nicholas Sarvari

Date: December 2016

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