Measures for Identifying and
Reducing Fraud and
Corruption Risks in Public
Procurement
OLAF.D.2 – Fraud Prevention, Reporting and Analysis Unit
Riga – 25 February 2015
What is OLAF?
 The European Anti-Fraud Office.
1. To protect the financial interests of the European Union (EU) by
investigating fraud, corruption and any other illegal activities;
2. To detect and investigate serious matters relating to the
discharge of professional duties by members and staff of the EU
institutions and bodies that could result in disciplinary or criminal
proceedings;
3. To support the EU institutions, in particular the European
Commission, in the development and implementation of antifraud legislation and policies.
 Investigations: fully independent
 Policy: part of the European Commission
 Provide financial support through the Hercule III programme to
Member States' authorities and NGOs for actions to prevent and
fight fraud against the EU Budget.
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Costs of corruption
 Scope of the study: 8 Member States and 5 sectors
 Public procurement = about 20% GDP in the EU (2010: € 2.4
trillion)
 Direct cost of corruption <2.9% , 4.4%> value of procurement
published in OJ
=
 EUR 1 470 million and EUR 2 247 million
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Costs of corruption
Clean projects
5% loss
Corrupt/grey projects
18% loss
Average loss attributable to corruption: 13%
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Costs of corruption
Direct costs of corruption in public procurement
Sector
Road & rail
Direct costs of corruption
(in million EUR)
% of the overall procurement value
in the sector
in the 8 Member States
488 –755
1.9 % to 2.9%
27 –38
1.8% to 2.5%
830 - 1 141
4.8% to 6.6%
26 –86
4.7 % to 15.9%
99 –228
1.7% to 3.9%
Water & waste
Urban/utility construction
Training
Research & Development
Table: costs of corruption by sector (Source: PwC)
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Types of corruption
 Bid rigging
 Kickbacks
 Conflict of interest
 Other – including deliberate mismanagement/ignorance
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Types of corruption - analysis
Type of corruption by sector
Bid rigging
Kickbacks
Conflict
of interest
19
14
11
3
Road & Rail
Water & Waste
Training
10
15
1
8
6
3
4
3
2
1
0
1
Research & Development
12
4
2
0
Total*
57
35
22
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Sector
Urban/utility construction
Deliberate
mismanagement
Type of corruption by Member State
Member State
France
Hungary
Italy
Lithuania
Netherlands
Poland
Romania
Spain
Total*
Bid rigging
6
9
12
11
0
10
4
5
57
Table: types of corruption identified (Source: PwC)
8
Kickbacks
3
2
3
2
0
6
8
11
35
Conflict
of interest
5
4
4
1
1
2
4
1
22
Deliberate
mismanagement
1
0
0
1
0
1
1
1
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Estonia in the reports
 Despite progress with e-procurement, corruption risks remain,
involving possible hidden agreements between politicians,
officials and entrepreneurs, creating competitive advantage
through information-sharing, false information in invoices, low
tender prices and additional service ordering, and breaking up
contracts into smaller parts to reduce reporting obligations
 In July 2013, a European Commission-funded report coordinated
by Transparency International noted corruption risks at the
highest and lowest levels of the system distributing EU funds.
Annex Estonia to the EU Anti-Corruption Report, p. 8
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Estonia in the reports
 65% of Estonian respondents consider corruption to be
widespread (EU average 76%)
 22% say that corruption affects their daily lives (EU: 26%)
 19% of companies in Estonia consider corruption a problem when
doing business (below the EU average of 43%)
 17% think that corruption has prevented them from winning a
public tender in the past three years (EU: 32%)
 4% of Estonian respondents say they were asked or expected to
pay a bribe over the previous 12 months (EU average 4%)
Annex Estonia to the EU Anti-Corruption Report, p. 3-4
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Latvia in the reports
 Public works, goods and services accounted for about 20% of
Latvia’s GDP in 2011. The value of calls for tender published in
the Official Journal as a percentage of total expenditure on public
works, good and services was 87.2% in 2011 (highest
percentage in the EU)
 Public procurement in the construction sector faces particular
challenges. Following a KNAB investigation, municipal- and
private-sector managers were convicted of bribery in relation to
construction projects. The Procurement Supervision Bureau has
noted cases in which procuring agencies failed to make
documentation available to bidders, requirements for bidders and
subcontractors were missing or unclear, or requirements
regarding bidders’ qualifications were disproportionate
Annex Latvia to the EU Anti-Corruption Report, p. 3-4, 7
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Latvia in the reports
 83% of respondents think corruption is widespread in Latvia (EU
average: 76%)
 67% say that it is acceptable to give a gift to obtain something
from the public administration (highest percentage in the EU)
 Some 20% say that corruption affects their daily lives (EU
average: 26%)
 20% of companies consider corruption a problem when doing
business in Latvia (EU average: 43%)
 81% agree that bribery and using connections is often the
easiest way to obtain public services (EU average: 73%)
 37% think that corruption has prevented them from winning a
public tender in the past three years (EU average: 32%)
 Some 6% of Latvian respondents state that they have been
asked or expected to pay a bribe over the past 12 months (EU
average: 4%)
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Lithuania in the reports
 Public works, goods and services accounted for about 16% of the
GDP in Lithuania in 2011. In the same year, the value of calls for
tender published in the Official Journal as a percentage of total
expenditure on public works, good and services was 34.7%.
 95% of Lithuanians regard corruption as widespread in their
country (EU average 76 %)
 29% say that corruption affects their daily lives (EU avg 26%)
 36% of companies in Lithuania consider corruption a problem
when doing business in Lithuania (EU average 43%)
 Lithuania has the EU’s highest percentage (29%) of respondents
who say they have been asked or expected to pay a bribe for
services received over the past 12 months (EU average 4%)
 88% agree that bribery and the use of connections is often the
easiest way of obtaining certain public services (EU avg 73%)
Annex Lithuania to the EU Anti-Corruption Report, p. 2-5
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Reactions
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Fraud prevention tools – Red flags
Red flags are:
Warning signals, hints, indicators of possible fraud
The existence of a red flag does not mean that fraud exists but that
a certain area of activity needs extra attention to exclude or confirm
potential fraud.
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Fraud prevention tools – Red flags
Rigged specification:
 only one or abnormally low number of bidders respond to
request for bids;
 similarity between specifications and winning contractor’s product
or services;
 complaints from other bidders;
 specifications are significantly narrower or broader than similar
previous requests for bids;
 unusual or unreasonable specifications;
 the buyer defines an item using brand name rather than generic
description.
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Fraud prevention tools – Red flags
Collusive bidding:
 winning bid is too high compared to cost estimates, published
price lists, similar works or services or industry averages and fair
market prices;
 persistent high prices by all bidders;
 bid prices drop when new bidder enters the competition;
 rotation of winning bidders by region, job, type of work;
 losing bidders hired as subcontractors;
 unusual bid patterns (e.g. the bids are exact percentage apart,
winning bid just under threshold of acceptable prices, exactly at
budget price, too high, too close, too far apart, round numbers,
incomplete, etc);
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Fraud prevention tools – Red flags
Conflict of interests:
 unexplained or unusual favouritism of a particular contractor or
seller;
 continued acceptance of high priced, low quality work etc;
 contracting employee fails to file or complete conflict of interest
declaration;
 contracting employee declines promotion to a non-procurement
position;
 contracting employee appears to conduct side business.
 close socialisation between a contracting employee and service or
product provider;
 unexplained or sudden increase in wealth by the contracting
employee;
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Fraud prevention tools – Red flags
Manipulation of bids:






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complaints from bidders;
poor controls and inadequate bidding procedures;
indications of changes to bids after reception;
bids voided for errors;
a qualified bidder disqualified for questionable reasons;
job not re-bid even though fewer than the minimum number of
bids were received.
Fraud prevention tools – Red flags
Split purchase:
 two or more consecutive, related procurements from the same
contractor just under competitive bidding or upper level review
thresholds;
 unjustified separation of purchases, e.g. separate contracts for
labour and materials, each of which is below bidding thresholds;
 sequential purchases just under the thresholds
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Reactions
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Fraud prevention tools – Practical guides
1. Detection of forged Documents in the field of structural actions.
A practical guide for managing authorities.
2. Identification of conflict of interests in public procurement
procedures in the field of structural actions.
3. Handbook : The role of Member States' auditors in fraud
prevention and detection.
4. Guidelines for national anti-fraud strategies for ESI Funds.
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Access to the practical guidance is restricted to Member States' staff.
Fraud prevention tools – Transparency
Retrieved from http://datanest.fair-play.sk on February 6, 2014
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Discussion
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Thank you for your participation!
Maria Ntziouni – Deputy Head of Unit
OLAF.D.2 – Fraud Prevention, Reporting and Analysis Unit
OLAF - European Anti-Fraud Office
European Commission
Rue Joseph II 30
B–1049 Brussels
[email protected]
http://ec.europa.eu/anti_fraud
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