Public Sector Procurement/Contractor Fraud: Under Control, Under the Radar or Under the Carpet?
02 December 2014
As prolific procurers of services, public sector bodies are particularly vulnerable to fraud. Instances of fraud can occur pre or post contract award and can involve internal or purely external activities. The nature of the fraudulent schemes perpetrated against the public sector range from the seemingly simple to the highly complex. Prevention and detection of this type of fraud appears to slip in and out of favour on the agendas of those operating in the public procurement field. Alongside the issue of procurement/contractor fraud, public bodies also have to grapple with new anti-bribery legislation.
The Audit Commission’s parting shot
The Audit Commission recently published what will be its final “Protecting the Public Purse” report before its closure in March 2015. Overall, it notes that the value of fraud detected by Councils in England has increased tenfold since 1990. In the year 2013/2014 the value of fraud detected by Councils increased by 6% to £188million and the value of non-benefit fraud increased by 2% to £59million, although the number of instances of fraud actually decreased. The report concedes that increased detection of fraud could reflect an improvement in procedures and general fraud awareness. However, the Commission recognises that there are significant difficulties in quantifying the level of fraud perpetrated against local government with any great precision. A number of the Councils who provided data on their fraud detection indicated that they had detected no non-benefit fraud whatsoever. In the Commission’s experience this was felt to be highly unlikely, which would lead one to assume that fraud had either gone under the radar or been swept under the carpet.
The Northern Ireland experience
Public sector fraud was thrust into the spotlight in Northern Ireland in 2009 with the publication of the Public Accounts Committee (“PAC”) report entitled “The Investigation of Suspected Contract Fraud in the Belfast Education & Library Board”. The press release highlighted poor value for money, conflicts of interest and evidence of favouritism towards certain contractors as the “shock findings” of the report. The report highlighted examples of significant payments for work which was not in fact carried out. It also found that the Board paid significant sums for work that was not completed to the required standard. There were examples cited of significant contracts being awarded to relatives of the members of staff responsible for overseeing the tender process. Many readers will recall the furore which resulted. In the aftermath of the report a number of recommendations were made, particularly regarding fraud awareness training.
Where are we now?
Some 5 years after the initial shockwaves which were the result of the publication of the PAC report and it would be fair to state that things are seemingly quiet in this area. This may well be as a result of the tightening up of practices and rolling out of training which were prioritised at the time. Unfortunately, new forms of fraud are constantly evolving and this is not an area in which it is possible to allow any complacency to creep in. There has also historically been a reluctance to share information regarding suspected or actual fraud which in itself can compound the problem.
The Bribery Act 2010
In July 2011, the Bribery Act 2010 (the “2010 Act”) came into force. The most talked about change to previous anti-bribery legislation was the introduction of the new section 7 offence of the failure of a commercial organisation to prevent the bribery of an associated person. Subsequent guidance produced by the Ministry of Justice has clarified that a commercial organisation may include some public sector organisations. As a result, public sector organisations must be more aware than ever of their potential liabilities under the 2010 Act, and what is required to comply with their obligations under same.
Until this year, there had only been three convictions under the 2010 Act, none of which involved the new section 7 offence. 2014, however, has seen this number double, and, although a commercial organisation is yet to be convicted, the Serious Fraud Office has made clear that there are a number of significant investigations underway.
What can we do for you?
We have considerable experience in this field having acted for both public sector bodies and large financial institutions who have come to us to share suspicions of procurement/contractor fraud. Ideally we seek to assist clients to prevent this scenario by providing training to increase fraud awareness amongst relevant personnel. Where fraud is suspected it is important to take immediate robust action.
Cases involving fraud fall into a unique category where there is often a very real concern that, if proceedings were to be issued in the normal way and the suspected culprits put on notice of the action, evidence could be concealed or destroyed. In those circumstances we have a proven track record in obtaining Anton Pillar Orders from the High Court which allow the intended Plaintiff to search premises and seize documents and electronic information. The execution of the Order is similar to the format of a dawn raid. Such a robust approach can be crucial to the prospects of making any recovery of sums appropriated fraudulently. We work closely with forensic IT consultants who assist in the preservation of electronic information. Their assistance proved particularly valuable in one case where, during the course of execution of the Order, they flagged to us that a piece of software retailed under the name “Evidence Eliminator” had been deployed upon our arrival at the premises. Needless to say this fact alone proved invaluable in negotiating a significant settlement. We have also obtained Mareva Injunctions which essentially freeze the assets of intended Defendants in an action. Again, this can significantly increase the prospects of recovering funds unlawfully appropriated.
All public sector organisations will be covered by the offences under sections 1-2 and section 6 of the 2010 Act, which involve offering or giving a bribe, accepting or receiving a bribe, and bribing a foreign public official. With the exception of duress, there is no defence available should such offences occur, and therefore what is acceptable and what is not should be communicated throughout the organisation. We can draft anti-bribery policies and provide training on same to reduce the risk of bribery occurring.
The 2010 Act offers the defence of “adequate procedures” for offences under the new section 7 offence. Paper compliance will not be enough, and we can help public sector organisations caught by section 7 carry out the necessary risk assessments and reviews, put anti-bribery policies and procedures in place, and provide training on same, to ensure they have adequate procedures in place should bribery ever be alleged.
Prevention is better than cure. This is an area that requires frequent refreshing and updating of awareness and training. Where fraud is detected it is now simply not an option to do nothing. We can provide you with the expertise to take appropriate action which stands up to external scrutiny.
For more information please contact Kirsten Magee.