Anti-Corruption Audits - Procurement Guidance for Auditors By Muhammad Akram Khan Former Deputy Auditor General of Pakistan makram1000@gmail.com
_______________________________________________ 1. Introduction Procurement consists of the whole process of acquisition of goods and services from third parties and spans from the concept of acquisition to the end of useful life of the asset or termination of the service contract. It covers a wide spectrum of goods and services from everyday commodities like pen and paper and contracted out services like maintenance of assets to construction of buildings and acquisition of IT equipment. It plays a central role in all government functions from education and health to policing and security services. The governments around the world spend large amounts of money on procurement of goods and services. For example, OECD countries spend 15 percent of their GDP on procurement and in several non-OECD countries this figure is even higher. 1In fact, the expenditure on procurement is generally the largest item on the budget after payroll expenditures. Because of the huge business opportunities that public procurement opens up, there is a fierce competition among suppliers to get public contracts. The temptation lures the business firms as well as public employees into corrupt practices. Bribes may involve large sums, reaching up to millions of dollars in large contracts such as arms deals. In terms of percentage, the bribes may range between 5 to 25 percent of the contract value.2 The auditors need to understand the mechanics of corruption in some detail. A simple corruption deal may involve bribery received by a public official (bribee) for awarding a contract to a supplier (briber). However, for concealing this criminal act, sometimes the briber and the bribee acquire the services of an intermediary who facilitates the corrupt transaction, keeping both the briber and the bribee at an arm’s length. The intermediary could be a consultant, architect, engineer, sub-contractor, or a staff member. In large transnational contracts, it could be a legally designated agent of the multi-national consortium of companies bidding for a contract. The bribees may not receive the bribe directly. They may designate natural or legal persons for diverting bribe funds. Bribees can invoke several methods to hide the bribe. For example, the bribe could be a direct cash payment received secretly, a form of consulting fee, a remuneration for false services, overpayment for goods and services, delivery of material for the pursuit of 1
Ehlermann-Cache, N. (2007). Bribery in Public Procurement: Methods, Actors and Countermeasures. Paris: Organization for Economic Cooperation and Development. Pp.5. 2 Ibid. Pp. 49.