I am pleased to welcome Colin Cram as a regular contributing columnist to the Procurement Insights Blog.
Being based in the UK, Colin will provide an across -the-pond perspective on the news and issues in the world of procurement overseas
Starting with today’s post on Procurement Fraud Colin will, on a regular basis, deliver the kind of insight that is commensurate with a 30 plus year career in purchasing.
By the way, be sure to check out Colin’s bio at the conclusion of his post.
The National Fraud Authority (NFA) has released its second report on fraud in the UK
Losses to fraud by various sectors are said to be: Public – £21 billion, Private – £12bn billion, Individuals – £4 billion and Charities £1.3bn. This amounts to some £38bn. However, using a different methodology, the NFA has arrived at a total of £73bn, of which most of the difference between the two figures comes from the private sector.
Of the losses in the public sector, £2.3bn are attributed to procurement. This represents 1% of purchase spend and was calculated by applying the 1% estimate by the Ministry of Defence of its losses due to procurement fraud. It is perhaps fitting that the report came out at around the time that Ross Knowles, the former head of energy buying at Laser, a public sector energy buying consortium, was convicted of fraud and who has since received a 6 year jail sentence. Through diverting a rebate from a supplier of just 0.04%, he was able to make £2m. We also have the ongoing case of A4E, which is under investigation for allegedly committing procurement fraud on welfare to work contracts by charging for placing more people into work than they had actually placed.
A more detailed scrutiny of the NFA figures reveals some question marks. Central government (including the National Health Service (NHS)) procurement fraud was alleged to amount to £1.4bn and local government to £890bn, both figures amounting to some 2% of their respective spends. Also, there is much more to the public sector than central (with the NHS) government and local government. So the figures don’t appear to add up. All of which goes to show the problem of identifying the scale of procurement fraud.
Procurement fraud exists in the private sector, but the report can do little more than estimate the loss at 1% of private sector procurement spend (which it puts at £2tn), which doesn’t tally with the £12bn fraud estimate for the private sector – see above. However, this is the first assessment of UK private sector procurement spend that I have seen, apart from my own of £1.4tn – reference my article following the last NFA report.
The report states that a survey by the Chartered Institute of Purchasing and Supply suggests that almost 1 in 10 of respondents had experienced procurement fraud in their organisations in the past year and 40% thought that procurement fraud could be a problem. However, respondents may represent an atypical sample.
Having been lecturing in the Far East and Middle East recently on combating procurement fraud and corruption, it has become apparent that the UK cannot be complacent. This can represent a huge loss to the UK economy at a time when we cannot afford it. The Association of Certified Fraud Examiners (ACFE), which is a global organisation, gives the UK a rating of only 7.8 (out of 10) in their national fraud league table whilst Singapore scores 9.2, despite some recently well publicised corruption cases. Procurement fraud is impossible to eliminate, though some of the procurement reforms in central government may help reduce it. That still leaves local government, the NHS and the rest of the wider public sector. An integrated and disciplined structure and approach to procurement for these sectors, with the procurement done independently of the commissioning bodies, would improve matters and make it easier to take anti-fraud measures and to identify where it is happening.
Meet Colin Cram:
Besides being a regular guest on the PI Window on Business Show including as a member of numerous panels discussing topics such as Transparency In Government Procurement and Security in the Cloud and Outsourcing, Colin Cram was the first guest on the new PI Inquisitive Eye Internet TV Showin which we talked about the December 2010 announcement by Cabinet Office Minister Francis Maude that the UK Government is moving towards establishing closer ties with the SME community in terms of contracting.
Colin of course is no stranger to championing progressive ideas and approaches to assist governments in achieving a much greater and more sustainable return for their purchasing policies and practices as highlighted in his seminal paper Towards Tesco – improving public sector procurement.