A Sourcebook - UN-Water

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Figure 5.1 Corruption in Procuring Suppliers and Contractors Awards supply contract Utility manager Conspire to inflate price, or reduce quality Private supplier Provides goods or services BUT quality below efficient level for price of contract Goods or services Pays kick-back or bribe Indicators of corruption in contracting can include: • Lack of competitive bidding on supply contracts, or poor processes • Numerous suppliers to a utility • Problems with quality of supplies and works • Unit prices that are high compared to similar purchases in the region or in other sectors. Box 6.3 on page 56 describes a range of practices that can indicate corruption in procurement processes. While the focus of those examples is on procuring capital works, similar problems can arise in procurement more generally. 5.1.1 Lack of competitive bidding and poor process A lack of competitive bidding could indicate preferential treatment to particular suppliers. Warning signs include multiple sole sourced contracts, or multiple contracts let just below thresholds for competitive procurement. Another sign may be a few suppliers receiving most of the contracts, especially if awards appear to be “rotated” among suppliers, or if other, reputable firms are being excluded. Poor processes could be due to incompetence, or could be due to corrupt officials influencing the bidding process to favor a particular set of bidders. Examples of poor process include: Box 5.1 Defining Bribes, Kickbacks, and Bid Rigging For the purpose of the discussion in this section, the following definitions are used: • Bribes are payments to an official or utility staff member, paid in advance in return for a promise to act in a certain way. (For example, award a supply contract to a particular firm, or install a connection within a particular timeframe) • K ickbacks are similar to bribes, but are paid after the fact, for example once the supply contract has been awarded to a particular firm • Bid rigging occurs where officials or managers rig or interfere with the contract award to favor a particular bidder, or bidders (usually in return for a bribe or kickback payment). 40
• Unexplained delays in the procurement process • Unreasonable prequalification requirements • Unjustifiable disqualification of the bidder offering the most responsive proposal • Selection of the lowest bidder followed by changed orders increasing the price, or changing the specs, or reducing the quality or volume of goods and services. A useful tool for detecting corruption in the utility’s procurement of goods and services is to conduct regular bid reviews, to look for corrupt patterns in supply contract awards (see Section 6.2.1 on page 54 for more detail on this approach). 5.1.2 Numerous suppliers Large numbers of suppliers also can indicate corruption in procurement. For example, many of the suppliers may not be legitimate, but may be “fronts” that provide an avenue for utility staff to transfer utility funds to themselves or others, or they may actually be controlled by a single firm. A Caribbean National <strong>Water</strong> Commission (NWC) example described in Box 5.2 illustrates how very high supplier numbers can be a symptom of widespread corruption. Box 5.2 Corruption in Contracting: Numerous Suppliers In 1998, a National <strong>Water</strong> Commission (NWC) in the Caribbean became concerned about the effectiveness of its procurement process. A new management team wanted to crack down on corruption. A determined effort was set in motion to analyze the sources, causes, and effects of corruption in the procurement process, and to find practical solutions. The NWC hired a firm of professional fraud investigators to carry out a review of the procurement process, and determine weaknesses, areas of risk, potential perpetrators and methods of corruption, and the efficacy of the existing controls. The first phase of this review involved an electronic review of the NWC’s master files for the previous two years—using a program called Fraud Filter TM —and interviews with selected employees and suppliers. This included a cross check of employee telephone addresses and phone numbers against a database of supplier telephone number and addresses to identify potentially fraudulent transactions. The second phase then physically investigated discrepancies discovered in the first phase. The review discovered that the NWC had more than 34,000 suppliers—an unnecessarily large number. The review revealed transactions, breaches of procedure and relationships which required further investigation and highlighted several serious weaknesses in the information system and other purchasing sub-systems which provided opportunities to defraud the commission. Although many of the transactions were for low-value invoices, the review showed up possibilities where more substantial amounts could have been involved, discovering instances of: • Abuse of financial controls such as bypassing authority limits by invoice splitting • Payments of duplicate invoices • Early payments to suppliers which were indicative of employees giving preferential treatment to those suppliers • Probable collusion between suppliers and employees where bribes and kickbacks could have been paid The review recommended that in order for NWC to minimize its exposure to purchasing fraud, it should limit the number of its suppliers to a maximum of about 1,000, excluding plumbing and small works contractors. It would provide for NWC to limit itself to no more than three potential suppliers for any one type of item that it purchases, except in the case of large contract tendering. The NWC also developed a list of approved contractors and suppliers by prequalifying them to ensure business with reputable firms. It also recommended the implementation of new structures and control mechanisms which would increase the likelihood of early fraud detection, and thereby reduce its incidence. Source: Former CEO of the NWC. 41
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Page 3 and 4: PREFACE In 1996, then World Bank Pr
Page 5 and 6: TABLE OF CONTENTS 1 INTRODUCTION ..
Page 7 and 8: Tables Table 1.1: How to Use the So
Page 9: Box 11.1: Five Key Elements of an A
Page 12 and 13: In each section, corruption and gov
Page 14 and 15: 2 UNDERSTANDING CORRUPTION AND GOVE
Page 16 and 17: Box 2.2 Governance in the Literatur
Page 18 and 19: Corruption often involves a “mora
Page 20 and 21: When these conditions hold, a virtu
Page 22 and 23: This suggests that sector practitio
Page 24 and 25: spur increased local demand for acc
Page 26 and 27: Source List 2.1 Framework for Think
Page 28 and 29: • P rovider - Section 5 discusses
Page 30 and 31: That said, the interpretation of na
Page 32 and 33: Source List 3.1 Country Level Gover
Page 34 and 35: 4 SECTOR ASSESSMENT This section in
Page 36 and 37: 4.3 Informal Service Provision In m
Page 38 and 39: Media coverage of corruption can se
Page 40 and 41: Opportunities for corruption arise
Page 42 and 43: Table 4.2 Some Corruption and Poor
Page 44 and 45: Source List 4.1 Sector Assessment S
Page 46 and 47: Source List 4.1 Sector Assessment (
Page 48 and 49: Source List 4.1 Sector Assessment (
Page 52 and 53: 5.1.3 Problems with quality As disc
Page 54 and 55: • Utility unable to link billing
Page 56 and 57: 5.3.1 Detecting corruption in human
Page 58 and 59: • Travel by utility staff at the
Page 60 and 61: 6 PLANNING AND IMPLEMENTING CAPITAL
Page 62 and 63: transferred from the government or
Page 64 and 65: sector staff might schedule mainten
Page 66 and 67: Practitioners can detect corruption
Page 68 and 69: • Increase the price of the contr
Page 70 and 71: 7 IMPLICATIONS OF DIFFERENT SECTOR
Page 72 and 73: Table 7.1 Five Variants of Private
Page 74 and 75: Box 7.2 An Example of Related Party
Page 76 and 77: • A reputation for corruption in
Page 78 and 79: Indicators of corruption risk in co
Page 80 and 81: • Management processes, for examp
Page 82 and 83: PART II INCREASING PROBITY AND IMPR
Page 84 and 85: Box 8.1 Improving Probity in Capita
Page 86 and 87: Applying the rules effectively is c
Page 88 and 89: sors and auditors can be appointed
Page 90 and 91: Box 8.6 Procurement Outsourcing to
Page 92 and 93: fective deterrents include debarrin
Page 94 and 95: Source List 8.1 Improving Project P
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9 INCREASING PROBITY AT THE PROVIDE
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Linking management controls to corr
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Box 9.2 Performance Incentives for
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Box 9.5 Performance Evaluation in a
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Source List 9.1 Improving Provider
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10 STRENGTHENING WATER SECTOR GOVER
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Government responses to citizen dem
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Methods for increasing information
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can at any time direct that provide
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Box 10.3 Internally Delegated Manag
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To overcome some of these constrain
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vider from the political directorat
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Box 10.7 Cooperative Management of
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Source List 10.1 Reforming Water Se
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technology in selected areas”, bu
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mission (the CRA) sets out rules fo
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surrounding area, to small schemes
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works and planning in public agenci
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11.2 Second Best Options for Improv
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Table 11.1 Summary of “Second-Bes
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good strategy. One way to identify
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Example of a simple, narrow approac
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lustration, a practitioner with som
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Source List 11.1 Improving Probity
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Source List 11.1 Improving Probity
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12 REVIEWING PROGRESS Monitoring an
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• Indicators chosen should relate
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Box 12.2 Using Objective Cost Measu
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on the program’s success had been
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Source List 12.1 Reviewing Progress
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threats). Competitive bidding proce
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Other Water Working Notes Water Wor
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