1. THE EVOLUTION OF FRAUD AND CORRUPTION IN SUPPLY CHAIN AND CONTRACT MANAGEMENT.

2. OBJECTIVE
To identify the core elements required in creating a control driven strategy to manage fraud and corruption in the Supply Chain Management environment.

3. COMMON FRAUDULENT PRACTICES
Bid Rigging
Tender Evaluation Manipulation
Contract Management Corruption

4. BID RIGGING
Common objective of bid rigging is to pre-select the winner of a bid or bids or pre-agreeing the rates, and entails collusive tendering, where two or more people secretly conspire that some or all of them will act as follow:

5. BID RIGGING (CONT.) Intentionally not submitting a bid;
Withdraw a bid;
Submit a non-competitive bid that is too high to be accepted or contains terms that are unacceptable;
Submit a bid, arrived at by agreement;
Bidders to submit bids only in certain geographic areas or only to certain public organizations,
Underquoting combined with extortion.

6. TENDER MANIPULATION
A tender could be manipulated by an individual or group of people colluding. Manipulation normally goes with an attempt to favour a specific outcome, which would be linked to benefits flowing to those individuals or groups manipulating the outcome.

7. TENDER MANIPULATION (CONT.)
Types of Manipulation:
Targeted Specifications.
Tampering with bid document resulting in disqualification of bidders.
Assisting bidders to prepare for bids or leaking specs to bidders.
Inconstant and subjective evaluation (also opens door for litigation).
Cancel & re-advertise.
Delay process and deviate.

8. CONTRACT MANAGEMENT CORRUPTION
Considering that most organisations focused on preventing fraud and corruption in the procurement stage, the area where fraud and corruption are evolving is in the contract management stage. This kind of corruption happens post award and could involve officials, with suppliers sometimes being victims and sometimes the culprits.

9. CONTRACT MANAGEMENT CORRUPTION (CONT.)
Types of Corruption:
Prepayment (Fiscal Dumping)
Payment Facilitation Bribes
Acceptance of poor value for money
Variation Orders
Deliberate delays to force contract price adjustments
Failing to enforce contractual terms
Collusion between consultants and contractors

10. COMBATTING FRAUD & CORRUPTION
How do we control the prevalence of Fraud and Corruption in the Supply Chain? It is important to first expose the audience to some basic concepts and terminology to the core elements required in creating a control driven strategy to manage fraud and corruption in the Supply Chain Management environment.

11. A RISK MANAGEMENT APPROACH
A risk management approach remains the most effective way of dealing with any business challenge, as it allows management to prioritise risks and assign resources in the most efficient manner.

12. TERMINOLOGY
Q: What is a Risk? A: A probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities that may be avoided through pre-emptive action. Q: What is Risk Management? A: The practice of identifying potential risks in advance, analysing them and taking precautionary steps to reduce/curb the risk.

13. You can not surprise me!!! TERMINOLOGY
Good Risk Management Simply Means:
You can not surprise me!!!

14. HOW DO WE MANAGE RISK We reduce the likelihood or Impact:
Tolerate: When risk is low enough to ignore it or there is sufficient plans in place to minimise the likelihood or impact of the risk.
Treat: When risk is not tolerable and pre-emptive action is within the means of the institution.
Transfer: When it can not be tolerated, but it can be treated by a 3rd party.
Terminate: When it is impossible to treat the risk further and it can not be tolerated.

15. CONTROLS: THE TOOLS OF BUSINESS
There are only three mechanism of controlling a business:
Preventative Controls: Stop it before it happens
Detective Controls: Detect it when it happens
Corrective Controls: Correct the consequences after it happened

16. MANAGING RISK USING CONTROLS
Reduce Impact:
Contingency planning
Business continuity plans
Disaster recovery plans
Disaster funding/Insurance
Intervention Plans
Consequence Management
Investigate
Criminal Charges
Disciplinary System
Civil Action
Reduce Likelihood:
Preventative Controls
Well designed systems & processes
Continuous Improvement
Training & Communication
Detective Controls
Monitoring & Evaluation
Reporting
Auditing
Contract Management
Corrective Controls

17. PREVENTATIVE CONTROLS
Well Designed Processes
Assigning Accountability
Segregation of duties
Avoid incompatible functions assigned to the same person
Committees (jointly & severally liable)
Job Rotation
Joint & Several Liability
Comprehensive code of conduct, non-disclosure & conflict of interest agreements (For later consequence management)
Communication & Training (No more, “I did not know”)

18. PREVENTATIVE CONTROLS (CONT.)
Well Documented Transactions (= Transparency)
Document standards (Templates and Signoff Protocols)
Archiving (Storage, Searchable & Retrievable)
Automation (Continues Improvement)
Simplify, Standardise, Centralise, Automate
Outsourcing (If you can’t do it well, don’t do it at all)

19. Internal Control Process
DETECTIVE CONTROLS
Internal Control Process
Internal Assurance Providers (Lines of Defense)
Management (Including Risk Management)
Internal Audit (Risk Base, Performance Audits & CAATs)
External Audit (AGSA)
Employees (Whistle Blowing Policy)
External Stakeholders
The Public (Hot Line)
Suppliers (Partnership Agreements)
Law Enforcement

20. Consequence Management
CORRECTIVE CONTROLS
Consequence Management
Investigate
Prosecute
Disciplinary
Criminal
Civil
System Improvement
Treat
Tolerate
Transfer
Terminate

21. Financial Language COBIT
Inputs
Level 0: Incomplete process: The process is not implemented or fails to achieve its purpose.
Inputs + process = output
Level 1: Performed process: The implemented process achieves its process purpose.
Inputs + process + preventative controls = managed output
Level 2: Managed process: The level 1 performed process is now implemented in a managed fashion (planned, monitored and adjusted) and its work products are appropriately established, controlled and maintained.
Inputs + process + preventative controls + Norms & Standards = expected output
Level 3: Established process: The level 2 managed process is now implemented using a defined process that is capable of achieving its process outcomes.
Inputs + process + preventative controls + Norms & Standards + detective controls = quality output
Level 4: Predictable process: The level 3 established process now operates within defined limits to achieve its process outcomes.
Inputs + process + preventative controls + Norms & Standards + detective controls + corrective controls = optimised output (Aka continues Improvement)
Level 5: Optimising process: The level 4 predictable process is continuously improved to meet relevant current and projected business goals.

22. Questions?