Professional Documents
Culture Documents
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I NTOSAI
Guideline
Corruption Prevention
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in Public Procurement
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I NT O SAI
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EXPERIENTIA MUTUA
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OMNIBUS PRODEST
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1Table of contents
93 Public Procurement 16
103.1 Definition 16
113.2 Principles 16
143.5 Public procurement in times of a crisis. (or 2.4 Special risk of corruption in
15 times of a crisis) 23
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66.2.4 Negotiations 52
116.3.3 Evaluation 68
127 Conclusion 70
138 Annex 71
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15This Guideline shall support public auditors controlling public procurement contracts or
16the individual public procurement policy of an entity (e.g. a ministry). But as we all
17recently learned special attention is needed in times of a systemic crisis impacting every
18sector of public policies and urgent and large public procurement is leading every entity
19to lower essential requirements. Public auditors have to take into account how public
20procurement can avoid a general collapse of requirements, but accept to lower some of
21them with systems of tracking to follow and limit the damages.
22One lesson from the COVID 19-pandemic, with time pressure, scarcity of health services
23and competition between public buyers, is that we need to better prepare for global
24challenges. In anticipation of this situation each public entity (and each government)
25should add in its business continuity plan a special chapter about a “failsoft system” of
26public procurement. The aim of a “failsoft system” is to warrant minimum standards and
27minimum internal controls in public procurement. These minimum standards have to
28adopted to the type of crisis - a worldwide pandemy is not comparable to a worldwide
29strike in transportations or a natural disaster. A special chapter of this Guideline deals
30with the particular challenges of public procurement in times of crisis. (3.5 Public
31procurement in times of a crisis / 2.4 Special risk of corruption in times of a crisis)
21 https://www.issai.org/pronouncements/guid-5270-guideline-for-the-audit-of-corruption-prevention/
3[access: 03.02.2021].
42 https://www.issai.org/wp-content/uploads/2019/08/GUID-5260-Governance-of-Public-Assets.pdf
5[access: 03.02.2021].
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1The membership of the Sub Group comprises the representatives from SAIs of ten
2countries: Austria, Czech Republic, France, Iraq, Malaysia, Namibia, Oman, Thailand,
3Pakistan and Poland.
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51.1 The Fundament – GUID 5270
6Corruption is one of the most dangerous threats to stability and peace. Among others,
7the Supreme Audit Institutions have a major responsibility in the fight against this
8threat. Already at the XVI INCOSAI in Uruguay in 1998, the participating SAIs agreed on
9the necessity of close cooperation and on an appropriate exchange of information for this
10task.
11To support the SAI auditors in preparing and conducting the audit of anti-corruption
12policies and procedures in government organizations within the scope of their mandate,
13the GUID 5270 - Guideline for the Audit of Corruption Prevention – is approved. The
14Guideline provides general information about the phenomenon of corruption, like costs or
15causes of corruption and has identified the following seven key components for an
16effective fight against (and prevention of) corruption, that are described in GUID 5270 in
17detail:
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1The GUID 5270 may also be used by auditees as guidance for implementing and carrying out
2their own anti-corruption-activities following this multi-component approach.
3By providing information about anti-corruption measures like basic requirements, examples
4and overall guidance, the anti-corruption endeavours of the auditees should be supported and
5strengthened by the INTOSAI community. This document should therefore underline the
6important educational and preventive role of SAIs in the fight against corruption.
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81.2 Additional – Guidance
9Already during the drafting of ISSAI 5700 the participating SAIs agreed that beside the
10general approach of ISSAI 5700, special guidelines are needed dealing with specific
11vulnerable areas to corruption3. These guidelines should base on the principal elements and
12seven key components of the relabeled GUID 5270, but should address deeper and more
13specific information on certain topics for a more effective fight against corruption. This specific
14guideline is dealing with corruption prevention in the field of public procurement.
15For 2000 to 2008, the Economic Commission for Africa estimates illicit financial flows from
16Africa at 242 US$4. Worldwide, more than US$ 9,5 trillions 5 are being spent by governments
17in terms of public procurement every year. In OECD countries, the volume of public
18procurement summarized up to 12% of GDP and 29% of general government expenditure in
1920136. In the Member States of the European Union, it is calculated, that around € 120
20billions are lost to corruption every year, nearly the annual budget of the EU. The European
21Commission identified corruption in public procurement as one major factor in this concern 7.
22The process of procurement is often complicated and together with this big stake of money
23involved, it creates a lot of opportunities and temptation for improper actions.
24Large scale transnational corruption relies on sophisticated techniques to disguise the origins
25and destinations of illicit financial flows. According to Global Financial Integrity, transnational
26corruption worldwide is valued at an average of €1.3 trillion to €1.8 trillion annually.
23 E.g. at the XVI INCOSAI in Uruguay in 1998 following areas of government were named as
3particularly vulnerable to corruption: Collection of taxes and other sources of revenue; administration
4for procurement and contracts; concession of subsidies, permits, and licenses; customs; and
5privatization process.
64 United Nations Economic Commission for Africa; African Governance Report IV 2016.
75 Transparency International, Curbing Corruptions in Public Procurement – A practical guide:
8https://www.transparency.org/en/publications/curbing-corruption-in-public-procurement-a-practical-
9guide [access: 26.02.2021].
106 OECD, Preventing Corruption in Public Procurement:
11http://www.oecd.org/governance/ethics/Corruption-in-Public-Procurement-Brochure.pdf [access:
1218.07.2021)
137 European Commission, Anti-Corruption Report 2014: https://ec.europa.eu/home-
14affairs/sites/homeaffairs/files/e-library/documents/policies/organized-crime-and-human-
15trafficking/corruption/docs/acr_2014_en.pdf [access: 18.07.2017 July 2017].
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1A relatively stable political environment makes the EU an attractive destination for laundering
2the proceeds of crime. Research suggests that illicit activities in the EU generated about €110
3billion in 2010 – or around 1% of the EU’s GDP. Meanwhile, the EU loses up to €1 trillion each
4year in tax evasion and tax fraud, according to the European Commission. Not only does this
5constitute a threat to European financial stability, it also diverts money from the public purse,
6erodes services and undermines trust in institutions. 8
7The purpose of this Guideline is to present ideas of corruption prevention in the complex
8process of public procurement. With that support it should support auditors to prepare and
9conduct audits in that field. Therefore, the Guideline will give a brief survey about the process
10of public procurement, provide information about typical risks and red flags and in particular,
11share examples and best practices for corruption prevention.
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132 Corruption in Public Procurement
142.1 Definition of corruption
15One can state that there is no single, worldwide universally accepted definition of
16corruption. For example, the United Nations Convention Against Corruption 9 does not
17contain a single definition of corruption, but lists several specific types or acts of
18corruption. There are however several so-called “working definitions” of corruption. For
19example, the definition used by Transparency International is “the abuse of entrusted
20power for private gain”. The working definition of corruption adopted by the World Bank
21Group is more oriented to the public sector. That definition is: “the abuse of public funds
22and/or office for private or political gain”. Corruption is also defined as the abuse of
23public trust for private gain, and public trust is defined as the ability of stakeholders to
24cooperate. Public trust creates social capital, which reduces transaction costs.
30
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12The World Bank has placed emphasis on a distinction between State capture and
13administrative corruption, which will be discussed now. State capture refers to the
14actions of individuals, groups, or firms both in the public and private sector to influence
15the formation of laws, regulations, decrees, and other government policies to their own
16advantage as a result of the illicit and non-transparent provision of private benefits to
17public officials11. According to the World Bank, administrative corruption refers to the
18intentional bypass or distortion by a public official of the prescribed application of rules to
19provide advantages to others in exchange for the illicit and non-transparent provision of
20private gains to the public official12.
21Large-scale corruption, defined as grand corruption, refers to illegal activity that usually
22takes place at the highest levels of government by members of the political or
23administrative elite or people associated with them, and that generally involves
24substantial amounts of money13. Small–scale corruption is also defined as petty
25corruption. This term refers to corruption that usually involves smaller sums of money
26and that is committed by public servants at lower levels 14. It is worth noting that
27although the amounts of money that are exchanged in connection with petty corruption
28may be small, the aggregate costs for society may cause a huge effect. In addition, the
210 H. Egli, Grundformen der Wirtschaftskriminalität, Fallanalyse aus der Schweiz und der Bundesrepublik
3Deutschland, Heidelberg 1985, p. 72 ff.
411 Anticorruption in Transition: A Contribution to the Policy Debate, World Bank, Washington D.C. 2000,
5pp. XV-XVII.
612 Ibidem.
713 Helping Countries Combat Corruption. The Role of World Bank, Word Bank Washington D.C. 1997,
8pp. 9-10.
914 UNDP, Tackling Corruption, transforming lives. Accelerating Human Development in Asia and the
10Pacific. Asia and Pacific Human Development Report, 2008. Available at
11http://hdr.undp.org/en/content/tackling-corruption-transforming-lives [access: 01.02.2021].
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1economically disadvantaged members of society suffer the most from petty corruption,
2as they usually are most directly affected by it.15
3A distinction can also be drawn according to the spheres of State and society in which
4corruption occurs: in the private sector, at the interface of the private and public sectors,
5and in the public sector. By adopting the actor-centric approach towards giving and
6accepting corruptive advantages, passive and active corruption can be distinguished.
7Passive corruption involves the deliberate action by an official, who, directly or through
8an intermediary, requests or receives advantages of any kind whatsoever, for himself or
9for a third party, or accepts a promise of such an advantage, to act or refrain from acting
10in accordance with his duty or in the exercise of his functions in breach of his official
11duties. Active corruption involves the deliberate action of whosoever promises or gives,
12directly or through an intermediary, an advantage of any kind whatsoever to an official
13for himself or for a third party for him to act or refrain from acting in accordance with his
14duty or in the exercise of his functions in breach of his official duties. 16 Summing up, the
15following table shows the various ways corruption can be classified.
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215Helping Countries Combat Corruption. The Role of World Bank, Word Bank Washington D.C. 1997, pp.
310, 19.
416See: Convention drawn up on the basis of Article K.3 (2) (c) of the Treaty on European Union in the
5fight against corruption involving officials of the European Communities or officials of Member States of
6the European Union, done in Brussels on 26 May 1997.
717 List based on: U4 Issue, The basics of integrity in procurement, October 2011, No 10, page 13.
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1 Large contracts: Public procurement projects often have a huge financial dimension.
2 The more money is involved, the higher is the risk or the temptation for corruption, like
3 kickback payments (bribe). Additionally, these projects are harder to monitor or to
4 control.
5 Complex technology: If high-level technology is involved, there is the danger that
6 public officials managing the process do not have enough knowledge to detect fraud or
7 corruption.
8 Discretion: If there is a lack of transparency in the decision-making process, the risk of
9 corruption in public procurement is increased. The same occurs when the discretionary
10 or decision-making power is concentrated on one or less persons.
11 Lack of financial and operational controls: Weak systems of internal control or external
12 oversight lead to a higher level of corruption risk in public procurement. Lax
13 enforcement of rules and regulations or the perceived low risk of sanctions have the
14 similar effect.
15 Restricted access to information: Lack of transparency concerning executive decisions
16 together with a lack of public demand for information increase the risk of corruption by
17 making it difficult to keep an eye on the public officials managing procurement funds.
18 Time pressure: Often public procurement projects are targeted to a certain time limit
19 for completion. This can lead to not enough time for safeguards such as due diligence
20 tests of suppliers and competitive bidding rounds. It can also lead to appoint people
21 who are not civil servants and are not submitted to the same rules (e.g. no statement
22 of interests, accountability).
23 Scarcity or shortage in a sector: It may happen that public buyers are themselves in
24 competition and prefer not to observe completely public procurement rules to be sure
25 to contract the first and obtain the goods (e.g. health supplies).
26 Conflict of interest: The risk of corruption increases when the public duties and private
27 interests of an involved actor intersect. The position of a public official could be used to
28 create personal benefit. This must also be observed in the public procurement process.
29 Lack of ethics: Proper legal framework adopted in one country may not be enough, if
30 the sufficient standards of ethics are not implemented and followed by all parties
31 involved in the procurement process.
32 Failure of good governance: Good governance is a key to avoid corruption. Poor
33 governance arises from low quality public sector management, a lack of accountability,
34 poor relations between the government and citizens, a weak legal framework, a lack
35 transparency regarding public sector processes, and poor dissemination of information.
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1 A lack of competence and capacity due to inadequate training also contributes to failure
2 of governance.
3 Excessive Trust: Unwarranted and blind trust on a subordinate official may also lead to
4 petty corruption (Failure to comply with the four-eyes principle.
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6Public procurement contracts which value is below the legal threshold may cause risk of
7corruption because of lack of transparency, competition and a possible lower level of control.
8The following table provides an example18 for corruption risks at various stages of the public
9procurement process for infrastructure projects:
10
11Table 3: Stages of corruption
218 Example is taken from UNODC, Global Corruption Book, Chapter 11, online:
3https://track.unodc.org/Academia/Pages/TeachingMaterials/GlobalCorruptionBook.aspx, based on Jill
4Wells, “Corruption in the Construction of Public Infrastructure: Critical Issues in Project Preparation”,
5U4 (March 2015, Issue No 8) at 18, online: www.u4.no/publications/corruption-in-the-construction-of-
6public-infrastructure-critical-issues-in- project-preparation/.
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Tender for works Bribery to obtain contracts (leaving costs Procurement officers
and supervision to be recovered at later stages)
Private consultants (e.g.
contracts
Collusion among bidders to allocate supervising engineer)
contracts and/or raise prices (potentially
Contractors
with assistance from procurement
officers)
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219 Taken from: Transparency International, Curbing Corruption in Public Procurement – A practical
3guide, page 9f, online:
4https://images.transparencycdn.org/images/2014_AntiCorruption_PublicProcurement_Guide_EN.pdf
5[access: 26.04.2021].
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1of public funds, unequal competition, unjustified increasing costs, unnecessary works or
2supplies, not provided services etc. Corruption can also cause that the works, goods and
3services purchased are not in good quality and do not meet the public needs.
4
53.2 Principles
6Risks of corruption can be reduced and benefits of public procurement can be maximized by
7respecting the principles of public procurement. Principles may also be used as a guide of the
8contracting authority for its decision-making. Knowledge of the following principles is essential
9to prevent corruption in the public procurement:
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11 Non - discrimination
12 The principle of non-discrimination prohibits all discrimination based for example on
13 nationality, region, membership, size of company etc. Requirements which are set by
14 the contracting authority, need to allow access of all candidates 20 to procurement
15 process. For example, no preference shall be given to a local company simply without a
16 legitimate reason or technical specifications need to avoid an advantage of a particular
17 candidate. This principle is also broken if a candidate is excluded without a legitimate
18 reason or a candidate is not excluded despite the fact that according to set rules he
19 should have been excluded.
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21 Equal treatment
22 The equal treatment principle requires that comparable situations are not treated
23 differently and all candidates (tenderers) or suppliers involved in procurement need to
24 be treated equally. In this respect, award criteria need to be determined and used
25 including weighting or decreasing order of importance equally for all bids. All
26 candidates must be informed about the criteria and arrangements concerning the
27 contract award process and about decisions of the contracting authority.
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29 Transparency
30 The principle of transparency is a key instrument of the corruption prevention. This
31 principle requires the procurement process to be open, predictable, monitored,
32 documented and auditable (reviewable). The principle of transparency also means a
33 visibility of the flow of public funds throughout the public financial management. For
220 The word candidate can be understood and used interchangable with the words such as a bidder,
3contractor tenderer depending on the stage of the procurement process.
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1 example, contract notices, tender documents and criteria must be precise, complete,
2 clear, comprehensible and accessible to all parties including its advertisement in proper
3 time. To provide an appropriate degree of information it is necessary to strike a
4 balance between ensuring accountability and competition, and on the other hand,
5 protecting trade secrets and respecting the confidentiality of information that can be
6 used. The whole process of public procurement and evidence about decisions must be
7 sufficiently documented, available to public and reviewable. All candidates need to be
8 informed about the final decision of procurement procedure in time and they need to
9 have a possibility to serve a notice of appeal. Transparency can also be strengthened if
10 a signed contract is published.
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12 Avoidance of conflict of interest
13 Conflict of interest is understood as a personal advantage or reducing the property or
14 other benefit of the contracting authority. Conflict of interest can be found in situations
15 when persons involved in conducting procurement procedure can have influence on the
16 result of the procedure or are not impartial and independent in relation to procurement.
17 There might be some instances when an official is transferred somewhere where
18 his/her role is switched from auditee to auditor or vice versa, which would inflict a
19 conflict of interest.
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21 Proportionality
22 According this principle, requirements must be appropriate to achieve the objective of
23 procurement and must not go beyond what is necessary to achieve the objective. The
24 principle dictates that any qualifications and/or subject matter requirements must not
25 be disproportionate or excessive and must have a natural relation to the goods or
26 services being procured.
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28 Compliance
29 Compliance means that procurement is carried out in compliance with the relevant laws
30 and regulations.
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32 Ethical behaviour
33 People who are involved in Public procurement needs a sufficient level of ethical
34 standards and behaviour.
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1 Accountability
2 Accountability means that persons involved into the public procurement process must
3 be accountable for the execution of their duties and for decisions and actions taken in
4 their area of responsibility.
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6 Professionalism
7 Procurement need to be professionalised, which can be supported with sufficient
8 resources to procurement and training courses to enhance professionalism. Where
9 procurement officials are poorly paid, badly trained or lacking a viable career path the
10 risk of corruption increases.
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12 Fairness
13 Contract award and implementation decisions need to be fair and impartial. Persons
14 involved in the preparatory stage of procurement should not be involved in the
15 following stages.
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17 Efficiency
18 The procurement process needs to be efficient. This means, that the procurement rules
19 need to be proportionate to the value and complexity of the items to be procured.
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21 Integrity
22 Integrity refers to upholding ethical standards and moral values of honesty,
23 professionalism and righteousness, and it is a cornerstone for ensuring fairness, non-
24 discrimination and compliance in the public procurement process. Therefore,
25 safeguarding integrity is at the basis of any effort to curb corruption in public
26 procurement. Recognising the importance of integrity for good governance and trust in
27 public institutions, countries apply national integrity standards for all public officials.
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293.3 Types of Award Procedure
30By determining the type of award procedure, the contracting authority defines the number of
31potential contractors participating in the competition. The choice of the type of award
32procedure is important for purposes of corruption prevention, because restrictions of
33competition increase the risk of manipulation.
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1The most competitive procedure is the open procedure. The contracting authority makes
2known its intention to award a public contract by open procedure to an unlimited number of
3potential candidates by means of a notice of open procedure. Any interested candidates may
4submit a tender in response to a call for competition. However, there are cases when open
5procedure is not suitable or efficient and then contracting authorities can limit the number of
6candidates in different types of procedure:
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8 Restricted procedure
9 The contracting authority makes known its intention to award a public contract by
10 restricted procedure to an unlimited number of potential candidates. Only those
11 candidates who meet technical and professional capability and experience are invited
12 by the contracting authority (following its assessment) to submit a tender. Contracting
13 authority can limit the number of candidates.
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15 Negotiated procedure
16 This procedure is used in specific situations when the contracting authority needs to
17 negotiate the terms of the contract. The contracting authority makes known its
18 intention to award a public contract by this procedure to an unlimited number of
19 potential candidates. Only candidates invited by contracting authority (following its
20 assessment) may submit an initial tender which is the basis for the subsequent
21 negotiations. Procedure may take place in stages in order to reduce the number of
22 tenders to be negotiated. This procedure can be used also without prior advertising, but
23 only in limited (exceptional) cases (extreme urgency, due to special rights when there
24 is only one possible supplier, extension of existing contract etc.). If a public procurement
25 system allows negotiations to be conducted by outsourced agencies and authorities obtain
26 procurement under the framework agreements of these agencies, the agency must also
27 comply with the rules of public procurement.
28
29 Competitive dialogue
30 Contracting authorities use competitive dialogue for complex contracts such as large
31 infrastructure projects where the public authority cannot define the technical
32 specifications at the start. Contracting authorities set out and publish their needs and
33 requirements including award criteria and indicative time frame. Only those candidates
34 invited by the contracting authority may participate in the dialogue. Contracting
35 authorities open a dialogue with the selected participants. The aim of the dialogue is to
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1 identify and define the means best suited to satisfying their needs. Competitive
2 dialogue may take place in successive stages in order to reduce the number of
3 solutions to be discussed during the dialogue stage. The contracting authority continues
4 the dialogue until it can identify the solution or solutions which are capable of meeting
5 its needs. Contracting authorities then ask chosen candidates to submit their final
6 tenders on the basis of the solution or solutions presented and specified during the
7 dialogue.
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9 Innovation partnership
10 The procedure of the innovation partnership corresponds to competitive dialog but, the
11 contracting authority uses this procedure in case of the need for an innovative product,
12 service or works that cannot be met by purchasing products, services or works already
13 available on the market. The procedure can enable the contracting authorities to run a
14 tender competition for both the development and the purchase of innovative goods,
15 works or services in a single award process.
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17 Simplified procurement
18 This procedure is reasonable in case of the award of contracts of low monetary value to
19 use a simplified (small - scale) procedure. Rules of this procedure, which can be very
20 simple, are different and depend on each contracting authority (or State). However, the
21 principles of transparency, non- discrimination and equal treatment need to be
22 followed.
23
243.4 Stages of public procurement
25The following stages are vital for procurement processes, exceeding a specific amount and the
26simplified procedure is not applicable.
27Each individual stage of the procurement process contains risky areas, which can signal a
28suspicion of corruption. On the other hand, not all problems are related to corruption and
29what can look like corruption may also be a simple error.
30
31 Pre - tendering phase
32 The procurement process starts at analysis and assessment of present situation, needs
33 and sources with regards to economy, efficiency and effectiveness. All licenses, permits
34 and authorizations must be secured as well. The contracting authority conducts market
35 consultations with experts or with potential candidates with a view to preparing
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1 procurement documents and informing economic operators about its plans and
2 requirements. In this context the prior information notice is published. The contracting
3 authority prepares the tender documents which must include all information the
4 candidates need for preparing their tenders. The tender documents are published and
5 at least consist of the technical specifications, the requirements for the candidates’
6 qualification and the criteria for selecting the best bid. Nevertheless, it must be an
7 unambiguous and complete description, so that all candidates have a clear
8 understanding of what is required. The contracting authority also determines the type
9 of award which defines the number of potential contractors participating in the
10 competition.
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12 Tendering phase
13 Tendering phase begins with the publication of the contract notice or with the invitation
14 of tenders. Candidates draw up tenders on the basis of the tender documents which
15 they have received. Candidates have been submitting tenders until expiry of the
16 deadline for submission prescribed by the contracting authority. The contracting
17 authority opens the bids and verifies formal necessities, qualification and evaluates the
18 tenders received. The tendering procedure is completed by awarding the contract
19 (including contract award notice) or by cancelling the procedure. All relevant steps and
20 decisions concerning tendering phase must be documented in a transparent way,
21 monitored and examined including taking corrective actions.
22
23 Post – award phase
24 The contract and the project execution need to be monitored and controlled by
25 professional persons. The important aspects of monitoring and controls are assurance
26 of compliance with contract terms and conditions, effective communication with
27 suppliers and control of suppliers, managing contract changes, quality assurance and
28 delivery requirements, resolving claims and disputes and proper invoicing resulting in
29 timely payment. The contracting authorities very often complement procured and
30 contracted works or deliveries during contract execution and without a new
31 procurement procedure. It can be flexible solution and it can bring savings. On the
32 other hand, it can be a tool for favouring a supplier, avoiding the open or a stricter
33 procedure and increasing the price.
34
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221 Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement
3and repealing Directive 2004/18/EC; Preventing corruption in public procurement, OECD, 2016; ACT 134/2016
4Coll., on Public Procurement, Czech Republic.
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13.5 Public procurement in times of a crisis. (or 2.4 Special risk of corruption in times
2of a crisis or Chapter 7 under the title Public Procurement during Crisis-proposal SAI
3Malaysia)
4
5Public procurement rules are usually very detailed and auditors have to audit the whole
6compliance of all procurement steps with these rules. The present guidelines aims to help
7auditors in such checks to enforce the rules.
8However, there may be situations when public managers cannot fully respect these rules. In
9such cases, auditors have to take these limits in their audits and adapt subsequently their
10diligences.
11The European Commission already considered the negotiated procurement procedure without
12publication in case of imperative urgency to be applicable during the 2015 refugee crisis in
13order to award urgent public contracts to meet the needs of asylum seekers. 22 The emergency
14situation during a pandemic or natural desaster, which are comparable due to the urgency,
15justifies such measures and a special procedure for crisis procurement.
16With its Guidelines23, the European Commission approves of the implementation of negotiated
17procedures without prior notice for the purpose of procuring urgently needed goods and
18services in the COVID 19-pandemic.
19As an example, since 2020 and the breakout of the COVID 19-pandemic, various international
20entities (UNODC24, OECD25, EU, INTOSAI and its regional organizations) and NGO
21(Transparency International26) have raised the flag of increased risks of fraud, corruption,
22embezzlement and money laundering in the field of purchasing healthcare products.
23With the current pandemic, all countries undergoe strong time pressure to face the worldwide
24competition between purchasers – including public purchasers- because of scarcity or
25shortage of healthcare supplies. They may also need to buy goods that do not exist yet (like
26vaccines in 2020). Moreover, the pandemic can disorganize procurement teams which can
27less easily coordinate responses, may be themselves stricken by disease. Suppliers mays bear
222 Art 31 (1) c Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on
3the coordination of procedures for the award of public works contracts, supply contracts and service
4contracts (OJ L 134, 30.4.2004, p. 114).
523 Guidelines of the European Commission on the use of the framework for the award of public contracts
6in the emergency situation caused by the COVID-19 crisis (2020 / C 108 I / 01) of 1 April 2020.
724 UNODC, COVID-19 Vaccines and Corruption Risks: Preventing Corruption in the manufacture,
8allocation and distribution of vaccines, https://www.unodc.org/documents/Advocacy-Section/20-
907643_Vaccines_CorruptionA4_approv2.pdf
1025 OECD, Policy measures to avoid corruption and bribery in the COVID-19 response and recovery,
11https://read.oecd-ilibrary.org/view/?ref=133_133216-hn3bqtlvkw&title=Policy-measures-to-avoid-
12corruption-and-bribery-in-the-COVID-19-response-and-recovery
1326 Transparency International, Why fighting corruption matters in times of COVID-19,
14Corruption Perceptions Index 2020: Research analysis, https://www.transparency.org/en/news/cpi-
152020-research-analysis-why-fighting-corruption-matters-in-times-of-covid-19
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1the difficulties. Lastly, public authorities have to support employment and therefore help their
2national suppliers. Such challenges do not provide the best time or opportunity to seek lower
3prices.
4Beside this huge health crisis, other crisis can consist in other heavy disturbance, such as :
5- a complete stop in transportations (so public purchasers can only buy local supplies, with
6no competition),
7- a large scale internet breakdown which slows or interrupts e-procurement process,
8- a natural disaster with destruction of public buildings and documents,
9- a military attack.
10Such crisis make more difficult for purchase teams to comply with every procurement rules.
11However, this should not lead public services and SAIs to accept a general collapse of fair and
12efficient purchase requirements nor to forget transparency and accountability as well as
13minimum standards and internal controls.
14Public entities may have continuity and adaptation plans for times of crisis, including the
15procurement field.
16If not, SAIs should urge the governments and relevant authorities to anticipate or cope with
17such crisis by drawing up Guidelines for defining the main procurement requirements and
18internal controls that should be maintained and the other rules that can be simplified. As a
19part of an “activity continuation plan ”, these Guidelines can:
20- enounce a “fail soft system” taking account of the kind of crisis, of goods and services
21needed,
22- describe inescapable rules,
23- insist on tracking systems and methods to avoid excessive competition between buyers
24(sourcing, purchasing group).
25
26They may be adopted in specialized documents in every Ministries and public entities
27according to the sector (e.g.: health sector, information systems, defense).
28They would be activated only if there is a statement of crisis or emergency issued by
29government or parliament and fulfilling several prerequisite and conditions.
30Within such a framework, SAIs would be able to adjust their audits according to these
31Guidelines.
32When there are not yet available Guidelines for public procurement during a crisis, decisions
33may have been taken hastily and disorderly to alleviate and accelerate the purchase process
34while diminishing requirements and shortening steps. In such cases, SAIs have nevertheless
35to make sure namely that:
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1• The decisions to lighten controls or to simplify the rules were taken in a transparent way
2by an entitled and accountable authority, allowing a democratic control.
3• The entity has anticipated a special context and endevours to maintain a fair
4competition: e.g. no supplier in the country, or high risk of shortage (having a preventive
5policy of sourcing, joining an international purchasing group), or impossibility to gather a
6regular selecting committee (on line secured meetings…).
7• Every case when a rule was not respected or a control diligence was lightened should be
8explainable only because of the crisis, and not for other unacceptable reasons, in order to
9avoid anybody taking advantage of the situation
10• Some steps of internal and, if relevant, external control were still enforced.
11• A tracking system allows to identify and punish abuses by public agents, private
12consultants or suppliers.
13
144 Organisational Prerequisites/requirements for corruption prevention
15Before auditing a single procurement project (or its parts), it is important to assess the
16capability of the organization to conduct the project. Besides the general aspects
17mentioned in GUID 5270, this includes especially:
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227 Transparency International, Curbing Corruption in Public Procurement – A practical guide, page 28.
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1process, e.g. by improving opportunities for civil society to monitor procurement processes.
2By centralising all relevant information in a publicly available web portal the amount of
3competition and the number of supplier or applicants can be increased. Automated
4procedures and a reduced amount of discretion exercised by public officials also limit the
5opportunities for corruption. However, sufficient and effective information technology
6controls28 (e.g. logical access control or program change) must be in place to assure the
7system is functioning as planned.
8
9The use of e-procurement is also highly recommended by the OECD 29 as it strengthens
10internal anti-corruption controls and detection of integrity breaches.
11
12 Integrity Pacts
13As integrity is a major factor for proper procurement management, integrity pacts can be a
14tool to create an integrity framework by encouraging participation companies to abstain from
15bribery. The government commits to preventing corruption (including extortion) by their
16officials and to following transparent procedures.30
17
18 The tender commission (committee/board)31
19The tender commission is a collegiate body established in order to help a contracting authority
20to select the best contractor and conclude a public procurement contract in line with the
21formal standards (based on legal or internal requirements). The process of awarding public
22procurement is based on collaboration of a number of people. A member of the tender
23commission must be a fair and objective person able to perform the tasks entrusted to
24him/her, guided only by the applicable regulations, knowledge and past experience.
25Therefore, it is necessary to define the legal framework and the range of activities of the
26members of the tender commission during the proceedings.
27
28 Prior information notice
29The prior information notice aims to indicate the intention of the contracting authority to
30initiate proceedings for the public contract award. By using such an instrument, the
228 Working group of IT-Audit – IDI Handbook of IT-Audit for Supreme Audit Institution, 2014.
329 OECD Recommendation of the Council on Public Procurement, recommendation VIII, online:
4www.oecd.org/gov/ethics/OECD-Recommendation-on-Public-Procurement.pdf (08.08.2018)
530 Transparency International, Curbing Corruption in Public Procurement – A practical guide, page 27.
631 Depending on the respective legislation in different countries.
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1contracting authority is enabled to resign from conducting the previously planned public
2procurement procedure due to the various reasons (e.g. financial ones). The prior information
3notice allows the potential contractors to be better prepared for submitting the offer. Placing
4the prior information notice about planned purchase increases the transparency of public
5procurement in the given entity.
6
7 Annual procurement plans
8The approval of the budget by the competent authority entitles, and sometimes even obliges,
9the contracting authority to publicly inform potential contractors about the public
10procurements to be realized by the entity within the next financial year. The annual public
11procurement plan increases the transparency of public procurement in the given entity,
12simultaneously allowing the potential contractor to better prepare for participating in selected
13proceedings for the award of a public contract.
14
15 Centralization of procurement purchases
16The institution of a central purchasing body allows for centralizing the purchasing activities for
17the needs of various contracting authorities, as opposed to only for one contracting authority.
18The main objective of procurement purchases centralization is to accumulate savings.
19
205 Corruption Prevention in simplified procurement processes
21
22Simplified (small - scale) procedure is reasonable to award low monetary value contracts
23however, rules of this procedure, could be very simple and different, based on the needs of
24the each contracting authority (or State). Further, the principles of transparency, equal
25opportunity, equal treatment and freedom of competition need to be strictly adhered.
26The simplified procedure can also be reasonable in large – scale procedures for situations of
27crisis and systemic risk of corruption because of time pressure and scarcity of the supply.
28
29The following table depicts the specific risks of this phase, associated red flags, examples of
30non-compliance and possible preventive actions.
31
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throughout the
procurement
process and
provide
sufficient
information.
No SOP on Procurement Misuse of power and Ensure a proper SOP provided
quotation SOP on possibility of corruptions and complied.
provided planning, and conflict of interest
preparing risk.
documents,
inviting and
receiving
offers,
evaluating and
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procurements.
Providing Irregular Increased procurement Ensure all bidders have same
inadequate information to costs; and equal information;
information favour some Unethical conduct; Use standard conditions;
bidders; No equal opportunity for Review tender documents to
Inclusion of all tenderers; ensure evaluation criteria
rare or specific Misinterpretations on clearly specified.
conditions. need or under or over
estimates lead to wrong
product or service in
quotations and they are
not comparable.
1
2
3Typical questions auditors could ask during their fieldwork are:
4
5 Was the advertisement published in a transparent and competitive way through
6 State Procurement electronic platform?
7 Was the bidder described clearly, unambiguously and comprehensively, giving
8 precise characteristics of what was to be supplied, so that all concerned had an
9 equal understanding of requirements and that clarification or amendments are not
10 necessary?
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1During an audit the representatives of the SAI revealed that purchase-actions repeatedly
2contained restrictive technical specifications leading to only one vendor firm without giving a
3sole source justification. An analysis of the purchase documentation came to the result that
4the vendor firm had influenced a purchase agent to eliminate competition by paying a bribe.
5
66.1.4 Choice of Procurement procedure
7To avoid corruption and bribery full and open competition is deemed to be the best
8procurement-procedure. This includes public notification of the bidding opportunities. The
9steps of the bidding process and contract terms and conditions need to be defined and
10published. This also comprises the criteria for choosing the winner.
11Only sealed bids shall be accepted, opened in the presence of all bidders at a specified time
12and place.
13The evaluation of the bids has to be carried out by competent unbiased staff. The whole
14process needs to be documented to allow future audit and evaluation.
15Simplified procurement procedures like sole-source-procurements need to be avoided to the
16highest extent possible. But if simplified procurement procedures are used, a valid
17justification has to be included in the purchase-documentation
18
19Table 8: Choice and Organization of Procurement procedure – risks, red flags, examples of
20non-compliance and preventive actions
Risk Red flags Examples of Non- Preventive Actions
Compliance
Failure to Only one or very Lack of offers from Improve procurement
identify few offers. suitable tenderers. planning;
potential Improve market research.
sources
Selecting Inadequate Need to seek offers Improve implementation
inappropriate responses from again; of procurement policies,
method potential vendor- Possible cost variations; guidelines and practices;
firms in purchase- Failure to obtain value for Improve tender
files. money. documentation and
Complaints from clearly identify the
vendor firms. evaluation criteria in
Request for Tenders;
Provide staff with
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1The objectives of an efficient and unbiased tendering-phase are to provide equal opportunity
2to all eligible tenderers by issuing complete specifications, information and timeline. An
3impartial evaluation is based on agreed yardsticks or conditions to select the best proposal.
4Later, negotiations with selected tenderers to remove any reservations have to be performed.
5During this process, risks have to be eliminated, e.g incorrect or inappropriate specifications,
6restricting information, subjectivity in decision-making, evaluation not on specified criteria,
7personal interests or corruptive behaviour.
8
9In the following paragraph a short description of each step and possible risks of corruption
10within the steps is given. In addition, an overview of red flags, possible consequences of
11corruptive behaviour and preventive actions against such behaviour is delineated.
12
136.2.1 Request for proposal
14The Request for proposal process objective is to provide equal opportunity for all suppliers
15and normally starts with clear definition of requirements with specifications, timelines,
16evaluation criteria etc.
17
18Common and exemplary risks for this phase are the asymmetric information, under- or
19overstatement of the need, the misinterpretation of the need, terms and conditions
20unacceptable to tenderers such as delivery schedule etc.
21
22The following table depicts the specific risks of this phase, associated red flags, examples of
23non-compliance and possible preventive actions.
24
25Table 9: Request for proposal – risks, red flags, examples of non-compliance and preventive
26actions
Risk Red flags Examples of Non- Preventive Actions
Compliance
Terms and Considerable Unability to submit Use standard and
conditions deviation compared quotations by some appropriate
not comply to previous tenderers. documentation;
with purchases, Improve tender planning;
technical including difficult or Consult with legal
specification impossible department, as needed;
s and/or conditions to favour Use commercially
legal some tenderers; acceptable terms;
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1and one agent of the vendor firm. The auditors came to the result that it was intended to pay
2one purchasing agent a specific amount of money for some products with rare conditions
3without business need. There may be some kickbacks while buying the products.
4
56.2.2 Bid submission
6The objective of the Bid submission process is to provide clarifications to all tenderers as
7requested by them, obtain all completed bids in closed envelope in specified place before due
8date and time and place s mentioned in Request for Proposal. Results after opening the closed
9envelops need to be published as soon as possible.
10
11Common and exemplary risks for this phase are the asymmetric information, disclosure of
12confidential information, lack of process to receive closed envelops, no response from quality
13suppliers etc.
14
15The following table depicts the specific risks of this phase, associated red flags, examples of
16non-compliance and possible preventive actions.
17
18Table 10: Bid submission – risks, red flags, examples of non-compliance and preventive
19actions
Risk Red flags Examples of Non- Preventive Actions
Compliance
Failure to Claims of unfair Offers with Implement standardised
adequately practices. qualifications by procedures for responding
address enquiries tenderers; to enquiries in writing
from tenderers Withdrawal of Provide staff with
offers; appropriate tender
Favour Award to management training and
some tenderer. experience;
Respond in a timely manner
to enquiries to all tenderers
even one tenderer asked
the information;
Allow adequate time for
tenderers to respond.
Actual or Claims of unfair Complaints from Implement standardised
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2 Were fair and impartial procedures in place in relation to receiving and opening of
3 quotations?
4 Were quotations or bids held in secure location prior to the closing time for quotes?
5 Were all the received quotes marked with the time and date of receipt and recorded in
6 an appropriate schedule or register?
7 Were all quotation forms and quotation schedule pages signed in the appropriate
8 manner?
9 Have the procedures for any late quotations been followed or excluded as per approved
10 procedures?
11 Were tenders with any errors treated as per approved procedure?
12 Were all the tenderers provided with information, even if a request for clarification was
13 raised by a tenderer?
14 Was the information provided by tenderers kept confidential?
15 Were all documents kept secured in safe place?
16 Has any checklist been prepared to ensure all process as per approved policies and
17 procedures?
18 Have the details of authorized persons to open the box or receive bids and orderly
19 mechanisms for this topic been made public?
20 Is the segregation of duties of the tender officer in charge clearly defined?
21
22To illustrate the danger of corruption at this early phase of a procurement action an example
23based on the experience of a specific SAI is given:
24
25During their field work the auditors compared the documents and quoted price for one tender
26wrote differently in numerals and alphabets. However, management accepted the bid to give
27favourable treatment for tenderer as one price quoted is less than all other quotations
28received. There might be some kickbacks (bribes) while buying the products.
29
306.2.3 Bid evaluation
31
32The objective of bid evaluation process is to fairly evaluate all received quotations technically
33and financially by an independent tender committee to select best tenderer to obtain optimum
34value from the tender process.
35
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1Common and exemplary risks for this phase are the inappropriate delegation, noncompliance
2with laws and regulations, favouritism, evaluation not as per criteria in the Request for
3Procurement (RFP), lack of proper training for committee, subjective evaluations, conflict of
4interests etc.
5
6The criteria for selecting the most advantageous offer (bid evaluation) allow to evaluate the
7submitted offers, they express the intentions of the contracting authority and also indirectly
8describe the subject of the purchase. The criteria for selecting the most advantageous offer
9aim to ensure the transparency of the offer selection, to increase the legal certainty and the
10standardization of all public procurement procedures.
11
12The following table depicts the specific risks of this phase, associated red flags, examples of
13non-compliance and possible preventive actions.
14
15Table 11: Bid evaluation – risks, red flags, examples of non-compliance and preventive
16actions
Risk Red flags Examples of Non- Preventive Actions
Compliance
Failure to Inconsistent Possible complaints Improve tender assessment
follow evaluations; from tenderers; and evaluation processes in
effective Subjective not Selection of line with organization policies;
evaluation objective; inappropriate Provide staff with appropriate
procedures Evaluation of tenderer; tender assessment and
offers. Legal issues. evaluation training and
experience;
Maintain all relevant
documentation, audit and
review evaluation procedures;
Ensure that Evaluation
Committee members declare
conflicts of interest with proper
sign-off;
Accountability measures.
Breaches of Claims of Loss of faith in Maintain, audit and review
security unethical or organization. security procedures;
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1Typical questions auditors could ask during their field work are:
2
3 Have the members of the tender commission been chosen in a transparent and
4 impartial manner?
5 How have the responsibilities of each member of the tender commission been
6 individualized?
7 Were fair and impartial procedures in place in relation to evaluation of bids and
8 selecting the most appropriate tenderer?
9 Was the evaluation criteria mentioned in RFP or RFQ duly adhered for technical and
10 financial selection of bids?
11 Were all the tender committee members present and quorum available for decision?
12 Were all tenders opened at the specified time and place in the presence of the
13 members of the Committee?
14 Are there appropriate and measurable evaluation criteria for bid evaluation?
15 Is there a conflict of interest between the members of the Commission and the
16 bidders?
17 Have the members of the Commission and the associated committees been given
18 adequate training to obtain an appropriate tender selection at the best prices?
19 Has any checklist been prepared to ensure all process adhered as per approved policies
20 and procedures?
21 Whether all documents along with required bonds such as performance bond, insurance
22 etc are available?
23 Is the selection of appropriate tenderer acceptable as per applicable laws and
24 regulations?
25 Has the selected tenderer accepted all conditions as per RFQ or RFP?
26
27To illustrate the danger of corruption at this phase of a procurement action an example
28based on the experience of a specific SAI is given:
29
30During their field work the auditors compared the documents and noted the management had
31considered training as a factor to evaluate tenders and had provided more preferential
32treatment for the selected tenderer. However, this requirement has not been mentioned in
33the evaluation criteria in RFQ/RFP. Based on further investigation, it was determined that the
34respective department management had accepted kickbacks to prefer the selected tenderer.
35The responsible authorities initiated the necessary measures.
36
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16.2.4 Negotiations
2
3The negotiations process objective is to discuss with best tenderer to remove any
4qualifications they put or negotiate for the benefit of public. The negotiation phase is one of
5the important stages that precedes the conclusion of the contract with the winning bid in the
6tender for determination of obligations and rights of the parties to the contract. This stage
7ends at a time when the parties agree on the legal issues and clauses of the contract. This
8approval is the dividing line between the negotiation stage and the contract stage.
9
10Common and exemplary risks for this phase are no response from selected bidder,
11Non-agreement on the terms of the proposed contract between the contractual parties/failure
12to secure the mandatory conditions and reaching an agreement regarding the contract privacy
13policy / the existence of unfair or cumbersome conditions on the bidder / Agreed upon.
14
15The following table depicts the specific risks of this phase, associated red flags, examples of
16non-compliance and possible preventive actions.
17
18Table 12: Negotiations – risks, red flags, examples of non-compliance and preventive actions
Risk Red flags Examples of Non- Preventive Actions
Compliance
Not matching Contract Delivery delays; Ensure potential suppliers
the disputes. Cost variations; aware of requirements
expectations of Reduction in value for before submitting
buyer and money; quotations;
tenderer Purchase of less Improve communication,
suitable product; including ensuring that
Inefficient use of Conditions of Contract form
resources. part of the Request for
Tender.
Deadlock on Contract Delays in delivery; Look at alternatives to share
details of disputes. Need to restart risk;
agreement procurement; Distinguish between
Possible cost of legal essential and non-essential
action. goals and requirements.
Failure to Inability to Delays in delivery; Establish baseline before
secure finalise Variations in cost; negotiations;
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2Typical questions auditors could ask during their field work are:
3
4 Were fair and impartial procedures in place in relation to negotiations with lowest
5 selected tenderer?
6 Has the lowest tenderer been given opportunity to remove reservations, if any?
7 Has the negotiations committee been appointed by tender committee?
8 Has negotiations committee been declared any conflict of interests?
9 Are Negotiations conducted on fair and reasonable manner?
10 Are all documents retained properly?
11 Have the members of the negotiations committee been given an adequate training to
12 negotiate in a proper manner?
13 Has any checklist been prepared to ensure all process adhered as per approved policies
14 and procedures?
15 Are the negotiations with selected tenderer acceptable as per applicable laws and
16 regulations
17 Has the legal department been contacted for all legal issues?
18 Are binding conditions included in the purchase order?
19 Have the terms of the contract been presented to a legal adviser?
20 Have the mechanism and methods of resolving contract disputes been determined in
21 the event if they occur?
22 Do penal requirements exist in the event that the supplier fails to supply at the right
23 time, place and specifications?
24 Has the potential cost of legal proceedings been determined in the event of a deadlock
25 between the parties?
26 Has the purchase resulted in the same quality and specifications previously set for
27 purchase?
28 Are the negotiations in accordance with the target package and the actual
29 requirements?
30 Are the wrongdoers charged with the resulting losses or has the contract been
31 cancelled?
32 Has a timeframe been defined for the negotiation process?
33
34To illustrate the danger of corruption at this phase of a procurement action an example
35based on the experience of a specific SAI is given:
36
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1During their fieldwork, the auditors reviewed the documents and noted management-initiated
2negotiations with not first ranked tenderer based on evaluation criteria. They had negotiations
3with some other tenderer. Due to this contract, value is higher and organization lost lot of
4money.
5
66.2.5 Contract award
7
8The contract award process objective is to award contract after the final agreement between
9the buyer and the supplier and after obtaining all approvals from appropriate authority. With
10this, contractual liability of the parties arises.
11
12Common and exemplary risks for this phase are the selection of an inappropriate resource /
13inappropriate product selection.
14
15The following table depicts the specific risks of this phase, associated red flags, examples of
16non-compliance and possible preventive actions.
17
18Table 13: Contract award – risks, red flags, examples of non-compliance and preventive
19actions
Risk Red flags Examples of Non- Preventive Actions
Compliance
Selecting an Failure to fulfil Legal issues; Provide staff with
inappropriate the contract. No value addition or appropriate tender
supplier benefit from the evaluation, financial and
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Procurement Review
Committee to review
tender and selection
process prior to awarding
contract.
Selecting Failure to meet Legal issues; Ensure users are involved
inappropriate the client’s No value addition or in the evaluation/selection
product need benefit from the process;
Delivery delays;
Penalties.
Failure of Contract Delays in delivery; Ensure good contract
either party to disputes. Downtime; administration and
fulfil the Failure to performance management.
Legal action.
conditions of satisfy needs. Hold regular inspections /
No benefit from
the contract meetings and ensure
contract;
progress reports;
Additional expenses.
Ensure all staff know
responsibilities and
conditions;
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disputes; negotiations;
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1 Did any checklist has been prepared to ensure all process adhered as per approved
2 policies and procedures?
3 Were the legal department had been contacted for all legal issues?
4 Are binding conditions included in the purchase order or contract?
5 Have the terms of the contract been presented to a legal adviser and obtained the legal
6 opinion?
7 Has the mechanism and methods of resolving contract disputes been determined in the
8 event if they occur?
9 Are there penal requirements existing in the event that the supplier fails to supply at
10 the right time, place and specifications?
11 Has the potential cost of legal proceedings been determined in the event of a deadlock
12 between the parties?
13 Was the commencement of works only after valid legal agreement?
14
15To illustrate the danger of corruption at this phase of a procurement action an example
16based on the experience of a specific SAI is given:
17
18During their fieldwork, work commenced without obtaining approvals from appropriate
19authority and without valid legal agreement. There was a dispute in making the payments to
20contractor and they went to court. Due to this, organization is suffered and paid extra
21money33.
22
236.3 Post-award Phase
24Post-award project management commences upon award of the Project i.e. from the date of
25issue of the Letter of Award to the successful bidder and ends after the completion of the
26Project and expiry/termination of such Agreement. The Post-award objective is to consider
27performance monitoring of the contractor/successful bidder, relationship management with all
28Stakeholders, resolution to disputes if any, try to serve all the objectives set out in the
29Agreement in the best possible manner.
30The Post-award phase consists of three consecutive stages:
31
32 the Contract Management Stage
33 the Order and Payment Stage
34 Evaluation
233 See also infra, example 6.3.3, the case including a kind of « Selecting an inappropriate supplier”
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26.3.1 Contract management stage
3The objective of contract management is to ensure that all parties to the contract fully meet
4their respective obligations as efficiently and effectively as possible, delivering the business
5and operational outputs required from the contract and providing value for money. It also
6protects the rights of the parties and ensures required performance when circumstances
7change. Contract management includes monitoring and documenting performance.
8
9Table 14: Possible risks, red flags, examples of non-compliance and preventive actions:
Risk Red flags Examples of Non- Preventive Actions
Compliance
Variations in Cost overruns. Reduction in Agree on a formula for
price and international trade; calculating variations;
foreign Adversarial relations Agree on prices and the
exchange amongst stakeholders; basis of prices (hedging).
Price inflating.
Failure of Contract Delay in the Ensure proper contract
either party to disputes. procurement process; administration and
fulfil the Legal action; performance management;
conditions of Hold regular inspections /
Additional expenses;
the contract meetings and ensure
Missing deadlines;
progress reports;
Failure to satisfy needs;
Ensure all concern units
Delays in delivery;
are aware of
Downtime.
responsibilities and
conditions;
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Legal action;
Disruption to
procurement activities.
Key personnel Progress on Low quality of work; Include requirement in
not available project Contract specifications specification and ensure
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3Typical questions at the contract management stage auditors could ask during their field
4work are:
5 Are standards and procedures in place for the negotiation and conclusion of
6 procurement contracts?
7 Are standards and procedures in place for reporting and recordkeeping control
8 procedures?
9 Are procedures and controls in place to ensure the completeness and legality of
10 procurement contracts?
11 Is staff at the contracting authority aware and trained on the negotiation and
12 conclusion of procurement contracts?
13 How is the delivery at satisfactory level of quality ensured?
14 Have there been cases of contractors being unable to deliver at all or not delivering at
15 satisfactory level of quality? How have the cases been handled?
16 How are disputes with contractors handled?
17
18To illustrate the danger of corruption at this post- award phase an example based on the
19experience of a specific SAI is given:
20
21During their fieldwork, the auditors discovered that a very important supplier did not declare
22and pay VAT, social taxes, and did not comply with labour law of the country, though
23compliance with taxes and other laws is a mandatory condition.
24The supplier answered that he respected the law of a third country, its affiliate being
25registered in a free zone where there is no taxes and no compulsory social security.
26However, in its bid, he presented its self as “john doe –group” without referring to an off-
27shore subsidiary. But the signatory of the contract was “john-doe-affiliate”.
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1Therefore, the supplier had cheated while the contracting authority turned a blind eye.
2The lack of monitoring laid during the phase of implementation – the supervisor didn’t ensure
3the compliance with taxes and laws - but the contracting authority failed also at the signing
4phase – not ensuring the law that supplier claimed to comply with.
5
6
76.3.2 Order and Payment stage
8 The objective of the Order and Payment Stage is to ensure that there are no deficient
9 separation of financial duties and/or lack of supervision of public officials that may lead to
10 false accounting and cost misallocation or cost migration between contracts, or late
11 payments of invoices as well as false or duplicate invoicing for goods and services not
12 supplied or for interim payments in advance of entitlement.
13
14Table 15: Possible risks, red flags, examples of non-compliance and preventive actions:
Risk Red flags Examples of Non- Preventive Actions
Compliance
Deficient False Receipt of goods and Implement segregation of
separations or accounting and services are not in line duties, i.e officials who
financial duties cost; with expected standards examine the invoice
and/or lack of Misallocation or and at least two officials against the goods and
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Legal action;
Disruption to
procurement activities.
1
2Typical questions at the order and payment stage auditors could ask during their field
3work are:
4 Is the contracting authority’s business focus moving to other areas after the contract
5 award, reducing the added value for the contracting authority in the arrangement or
6 impacting on the timelines of delivery of goods or works?
7 Is the contracting authority’s financial standing deteriorating after the contract award,
8 eventually endangering its ability to maintain the agreed quality requirements of the
9 goods purchased or level of services?
10 Is staff at the contracting authority with knowledge of the contract transferring or
11 moving on, weakening the relationship?
12 Is there a risk that the project vision might not be clear?
13 Could the statement of project objectives be more realistic?
14 Does the project scope define borders clearly?
15 What project deliverables are defined and what might be under-defined?
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26.3.3 Evaluation
3The results evaluation should be used to improve the corruption prevention system in public
4procurement. No system is perfect, controls can sometimes be avoided and structural
5weaknesses may not be timely identified. Therefore, it is necessary to analyse in detail the
6corruptive acts that have already occurred and to use the results to permanently improve the
7system.
8Furthermore, the use of e-procurement could enhance the transparency of public
9procurement and facilitate access for all stakeholders to information on public procurement.
10E-procurement might reduce the opportunities for corruption, but sufficient care must be
11taken in the development of e-procurement plattforms to ensure confidentiality,
12accountability and transparaency.
13
14Table 16: Possible risks, red flags, examples of non-compliance and preventive actions:
Risk Red flags Examples of Non- Preventive Actions
Compliance
Failure to Possible failure Cost overruns; Develop systematic
evaluate in the future. Missing deadlines; evaluation methods,
procurement techniques and evaluation
Legal action;
and criteria.
Compromised quality of
management
product.
processes
Failure to Procurement Legal action; Agree on performance
identify and objectives not Missing deadlines. criteria (with supplier and
address achieved; customer);
problems Possible failure Develop good relationships
in the future; with suppliers;
Implement performance
management strategies.
Failure to Failure to Missing deadlines; Develop systematic
evaluate improve Legal actions; evaluation methods,
procurement procurement techniques and evaluation
Compromised quality of
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Implement performance
management strategies.
Inadequate Overstatement/ Cost/Budget overruns; Plan your procurement
need analysis understatement Compromised quality of processes so that everyone
of the need; product; on your team understands
Poorly-designed
requirements.
1
2Typical questions at the order and payment stage auditors could ask during their field
3work are:
4 Are the project’s customers well understood?
5 Are the project stakeholders clearly identified?
6 Are the roles and responsibilities across the project team well documented and
7 understood?
8 Is the project structured in a way where success is a achievable outcome?
9 What are the strengths and weaknesses to the chosen approach for the project?
10 Is the project sufficiently financed?
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1 Is the quality of the project clear and achievable and easily measurable?
2 Do the project stakeholders have a good way to manage issues on the project as they
3 will inevitably arise?
4 Does the project have any hard constraints?
5
6Examples
7
87 Conclusion
9One of the most corruption prone government activities is public procurement. The reasons
10for this include "the volume of transactions and the financial interests at stake" as well as "the
11complexity of the process, the close interaction between public officials and businesses, and
12the multitude of stakeholders" (OECD, 2016). This Guideline aims to help auditors understand
13the corruption risks and red flags veiled in the intricacies of public procurement.
14The procurement in various countries is governed by the established regulations and rules of
15each country whereby the rules and regulations may differ in matters of detail. Nonetheless,
16this Guideline provide practical guidance across boundaries and shall serve as a companion
17for auditors in auditing public procurement as part of the financial statements audit,
18compliance or performance audit with the objectives of uncovering and preventing corruption
19in public procurement.
20
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2
Editor Name of Document Link
ADB/OECD (Asian Curbing Corruption in http://www.oecd.org/site/adboecdanti-
Development Bank / Public Procurement in corruptioninitiative/37575976.pdf
Organisation for Asia and the Pacific
Economic Co-operation
and Development) Anti-
Corruption Initiative
(stages of public
procurement)
INTOSAI GUID 5260 - https://www.issai.org/wp-
Governance of Public content/uploads/2019/08/GUID-5260-
Assets Governance-of-Public-Assets.pdf
INTOSAI GUID - 5270 - https://www.issai.org/pronouncements/
Guideline for the Audit guid-5270-guideline-for-the-audit-of-
of Corruption corruption-prevention/
Prevention
OECD Prevention Corruption http://www.oecd.org/governance/ethics
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1Azmi, K.A. & Rahman, A.A. 2015. e-Procurement: A Tool to Mitigate Public Procurement Fraud
2 in Malaysia? The Electronic Journal of e-Government, 13(2), pp. 150-160.
3Buang, A. 2017. Compilation of Auditor General’s Speeches and Country Papers. Second
4 Edition. National Audit Department of Malaysia.
5Buang, A. 2015. Issues in Procurement: Lessons From the audit report. Jurnal Pengauditan
6 Sektor Awam, 1, pp. 23-28.
7European Commission. 2017. Public Procurement. Derived at https://ec.europa.eu.
8Malaysian Anti-Corruption Commission (MACC). 2017. Integrity Pact. Derived at
9 https://www.sprm.gov.my
10Mantzaris, E. 2014. Public procurement, tendering and corruption: Realities, challenges and
11 tangible solutions. African Journal of Public Affairs, 7(2), 67-79.
12Public Works Department (PWD) of Malaysia. 2017. Buletin Integriti.
13OECD Principles for integrity in Public Procurement – ISBN 98-92-64-05561-2 –OECD 2009
14VCCI Best Practice Guide for Tendering and Contract Management
15Public procurement audit, The contact committee of the SAIs in EU, 2010
16
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