Mapping corruption in procurement
| Published date | 07 January 2019 |
| DOI | https://doi.org/10.1108/JFC-06-2018-0063 |
| Date | 07 January 2019 |
| Pages | 162-178 |
| Author | Adam Graycar |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Mapping corruption in
procurement
Adam Graycar
Flinders University, Adelaide, Australia
Abstract
Purpose –This paper aims to focus on understanding and preventing corruption in procurement in
public sector settings. Just as not all corruption is the same, not all procurement is the same. One
purpose is to analyze different types of procurements: standard, customized, intangible and complex.
Corruption in procurement undermines public administration, and the purpose of this paper is to
identify different types of procurements and provide readers with a framework for analysis and
subsequent intervention.
Design/methodology/approach –In all, 42 actual cases of public sector corruptionin procurement are
examined, and from these, an analyticalmatrix is developed. These cases are derived from the reports of the
New South Wales (Australia) IndependentCommission against Corruption. These cases represent all of the
procurementcases that the ICAC has taken to a formal hearing in its 30 years of existence.
Findings –While fraud is a major featureof corruption in procurement, there are significantorganizational
facilitators,and a number of slippage points in organizations are identified.These include peer culture, lack of
due process, temptation and managerial incompetence/willful disregard, and these are built into a matrix
which can be used in different countries or settingsby readers wishing to understand and preventdifferent
types of corruptionin procurement in their agencies.
Originality/value –This paper uses cases that have not previously been aggregated or analyzed and
providesanalytical tools for practitioners and academics.
Keywords Corruption in procurement, Fraud and procurement, Public sector procurement
Paper type Research paper
When procurement processes are corrupted, the whole exercise of the machinery of public
administration is significantly undermined. This paper explores corruptionin procurement
and proposes an analytical framework to identify procurement corruption and to keep it in
check. Media reports of procurement scandals abound but reliable data is hard to come by.
In this paper, a data setof actual cases in one jurisdiction is analyzed, and fromthis, a public
administrationenhancement tool is built.
This paper takes some very ordinary cases of corruption in procurement and explores how
these can be identified and classified, and how interventions might be structured. It is in
contrast to the vast literature on cross country measures and analyses of corruption, and within
that, corruption in procurement seen as the malfeasance of kleptocratic leaders who loot the
treasury and take a percentage on massive (and sometimes dubious) national projects.
While it is obvious that there are major reputational and process harms caused by
corruption in procurement there are also substantial financial impacts. The purchase of
goods, services andthe funding of multi-faceted projects make up a significantproportion of
government expenditure. In OECD countries public procurement comprises about 12 per
cent of GDP and 29 per cent of general government expenditure. Of government
procurement in OECD countries on average one third of procurement is by central
government, two thirds by sub-national government (OECD, 2016, p. 5). The EC estimates
that in Europe about e120bn is lost to procurement corruption each year (European
JFC
26,1
162
Journalof Financial Crime
Vol.26 No. 1, 2019
pp. 162-178
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-06-2018-0063
The current issue and full text archive of this journal is available on Emerald Insight at:
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Commission, 2014). Transparency International estimates that of the US$9.5 trillion spent
globally on government procurement about $2 trillion “disappears”(Transparency
International,2014, p. 4 and 8).
Numerous reports producedby leading global agencies focus on the risks and challenges
of corruption in procurement and many produce excellent lists of “red flags”which signify
which processes may be problematic, and propose solutions to counter the red flags that
may appear (Asian Development Bank, 2008;IBAC, 2015;OECD,2009, 2016;
PricewaterhouseCoopers,2013;Transparency International,2006, 2014;UNDP,2017;United
Nations, 2008;UNODC,2013).
Building on these foundations this paper reports on 42 actual cases and proposes a
framework by which to analyze corruption in procurement and suggests some
organizationalresponses to the issue under examination.
Procurement in our world
For the purposes of this paper,corruption can be described as a process where peopletrade
their entrusted authority for personal gain. Public sector corruption occurs when the
personal interests of political leaders or officials override the public interest. Where this
occurs there areserious implications for public administration.
Corruption in procurement operates on several levels. There is what is known as grand
corruption where the major decisions about procurement are politically motivated and
reflect the kleptocratic designs of political leaders and their cronies. At another level, there
are bureaucratic players who seek advantage of their positions to enrich themselves by
manipulating the purchase of goods and services for their agencies. This is done through
bribery, secretcommissions, various frauds and distortion of procurementprocesses.
In essence, there is corruption in setting the purchasing agendas on a grand scale, and
then there is the manipulation of agency processes. The corruption literature refers to the
principal/agent model (Klitgaard, 1988;Rose-Ackerman and Palifka, 2016;Yukins, 2011)
and sometimes it is the principal who is corrupt, and sometimes the agent. This paper will
focus on the latter, butwe must note some features of the former.
Noting that grand corruption is often institutionalized, recurrent, and mobilizes
considerable collective resources, Fazekas et al. (2013, pp. 6-7) point out that research into
grand corruption has remainedunderdeveloped because of lack of data. Where corruptionis
common at a national level it tends to disturb market mechanisms and impede economic
development. Corruptionin public procurement usually means purchases are made fromthe
best briber, rather than the best quality(Søreide, 2002).
Evidence assembled by Tanzi and Davoodi (1998) shows that corruption can reduce
growth by increasing public investment while reducing its productivity and reducing the
quality of the existing infrastructure –deteriorating infrastructure increases the costs of
doing business through congestion,power outages, accidents, and leads to lower output and
growth. They point out that the writing of contracts for complex projects is difficult, and
inevitably, many areas of uncertainty and eventual disagreement will need to be resolved
through negotiation –a strategicallyplaced high-level official can manipulate the processes
to select a particular project.“Ribbon-cutting ceremonies marking the opening of investment
projects –such as roads, dams, irrigationcanals, power plants, ports, airports, schools, and
hospitals –are every politicians dream [...] .however, corrupt politicians appear to choose
investment projects not on the basis of their intrinsic economic worth, but on the
opportunity forbribes and kickbacks these projects present.”(p.1).
Søreide (2002) paints a dismal picture. She claims that rent-seeking involves decisions that are
made in favor of the most successful briber or the one with the best governmental connections;
Mapping
corruption
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