1. International Fraud Expert and Man of Action
Sample fraud awareness presentation Combating Corruption and Fraud in WBG projects
Nigel Savage, JD, CFE
International Fraud Expert and Man of Action
SavageFraud.com

2. Categories of corruption and fraud schemes
Bribes and kickbacks
Hidden interests in contractors by project officials
Bid rigging
Rigged specifications
Unbalanced bidding
Leaking of bid information
Change order abuse
Fraud
False statements and claims
False and inflated invoices
Failure to meet contract specifications
Product substitution
Collusive bidding by contractors
Agreements by bidders to inflate bid prices, rotate winning bidders, divide markets, etc.

3. The schemes often are linked…
A BRIBE is offered or demanded in exchange for the promise of a contract award or other favor, which leads to…
Some form of BID RIGGING to exclude the other, often more qualified and less expensive bidders, and finally…
FRAUD in by the bribe payer, to cover the cost of the bribe and exploit the corrupt relationship.
The fraud can take the form of:
False, inflated or duplicate invoices
Failure to meet contract specifications
Substitution of cheaper inferior materials or products
Fraud is the most costly and disruptive stage.

4. Corruption
Bribes & kickbacks
Conflict of interest

5. Bribes and kickbacks To influence a contract Giving a “thing of value”
award or execution:
S selection
P price
Q quantity
Q quality
D delivery…and
F facilitate fraud
Giving a “thing of value”
“Gifts, travel & entertainment
Sexual favors
“Study tours”
Rental of properties, etc.
Cash payments
Payments thru subs, local partners, consultants, etc.
Hidden interests
Lessons
GTE etc recorded
GTE inspections
Cash INVOICES Siemens Liechtenstein
Detect with Audit rights NEED DOWNSTREAM AUDIT RIGHTS
Not detect with standard audits
Direct or CE
SPQQD link by CE or direct CHRONO key

6. Why were bribes paid? To be short listed For a contract award
To expedite the payment of invoices
For contract amendments and extensions
To influence inspectors to accept sub-par work or goods
To compromise auditors and NGOs
To avoid cancellation of the contract for poor performance

7. Corruption case example West Africa
Road - red flag
To house try to trace directly – contact sellers
To WDC circumstantial proof

8. Where the money ended up in the US…
Use Google Earth
Circumstantial and direct proof
refer to step 7

9. Conflicts of interest For example, an employee:
Secretly owns a supplier or contractor, or
Sets up a “shell company” through which he or she purchases supplies at an inflated price, or
Has an undisclosed interest in property sales or leases, etc.
MIDDLEMAN KEY
Eg Cameroon InterFace $45,000
Require that DISCLOSE name fee agreement eg Tomen
IDENTIFY not listed no website
ELIMINATE

10. Front company addresses
Empty Lot
Rice Trader
Shop House
Auto Repair Shop

11. Iraq UN “Oil for Food” case

12. Corruption red flags Complaints from losing bidders “SPQQD” factors
Unjustified sole source awards
Multiple awards just under procurement thresholds
Pressure to select an unknown or unqualified contractor
Pressure to select a particular subcontractor or agent
Long delays in contract negotiations or award
Involvement of unnecessary broker or questionable agent
Undisclosed agent fees and commissions
Questionable contract amendments and extensions
Procurement staff live beyond their means

13. Bid rigging Unbalanced bidding Rigged specifications
Excluding qualified bidders
Leaking bid data
Manipulation of bids after receipt
Unjustified sole source awards
Split purchases
Change order abuse

14. Bid rigging red flags Repeat [sole source] awards to the same bidders
Multiple awards just under thresholds (followed by change orders or contract extensions)
Bids just at or close to budget or estimate
Narrow specifications
Ambiguous specifications
Unreasonable pre-qualification procedures
Short or inadequate notice to bidders
Fewer than the average or required number of bidders
Low bid awards followed by change orders

15. Collusive bidding People of the same trade seldom meet together, even
for merriment and diversion,
but the conversation ends in
a conspiracy against the public,
or in some contrivance to raise
prices.
Adam Smith,
The Wealth of Nations,
1776 15 15

16. Collusive bidding: cartels
Cost Estimate:
104(1)d Embankment
191,930 m3 at (unit price) = 50,894,239.32
1 percentage point
steps variance from
ABC
Bidprice difference to
the designated
winner ascends in
10 mio CU steps
Strange and unnatural
final bidprice
numbers
Companies
B, C and F are
disqualified
Severely overpriced
earthworks
component
Evidence
Indicators 16
© INT, The World Bank Group
Reproduction and further distribution requires INT’s prior consent 16

17. Collusive bidding red flags
Connections between bidders, e.g., common addresses, fax numbers or personnel; assignment of contract to losing bidder, etc.
Persistent unexplained high prices
Unusual bid patterns; e.g. bids an exact % apart
Rotation of winning bidders
Same bidders bid; new bidders excluded
Losing bidders become subcontractors
False or forged bid securities 17 17

18. Fraud Delivery of expired, fake or adulterated drugs
Reporting of exaggerated cure rates and project results
False CV’s and company histories
False and plagiarized feasibility studies and reports
Forged performance documents
Forged bid securities & manufacturer’s certificates
Delivery of substandard goods or equipment
False and inflated invoices

19. Aid-financed rural “school”19 19

20. New aid-financed hospital20 20

21. “New” hospital equipment21 21

22. Narrow road Road 30% narrower than specifications
No road surfacing, contrary to specifications
The contract was
paid in full

23. ‘’Ten Year” urban road Thirteen months after completion23 23

24. Construction and billing fraud
Design of spa for ecotourism center
Status after >50% disbursed with 30 days left to completion

25. Construction fraud
Poor quality concrete in slabs, beams and columns with extensive honeycombing can result in
- a reduction of compressive strength
- a route for ingress of moisture to reach
and corrode the steel reinforcement
Poor quality concrete in slabs, beams and columns with extensive honeycombing (air entrapment due to insufficient vibration when poured)
Plastered with cement to fill in the air holes at the surface (This merely hides the visible honeycombing and adds nothing to structural strength).
Extensive honeycombing at concrete surfaces often extends into the core of a unit and can result in
a reduction in compressive strength of the concrete
a route for ingress of moisture to reach and corrode the steel reinforcement.
Plastered with cement to fill in the air holes at the surface.
The concrete mix itself appeared weak in cement content, both visually and to the touch.
At least two columns were rotated a few degrees out of true in plan view. This could result in additional torsional stresses at the junctions between columns and other structural units.
Fixing of steel reinforcement within the formwork was of a poor standard (e.g. dimensions of some reinforcement cages were irregular and, in places, would not have provided sufficient concrete cover between main tension reinforcement and the concrete surface). Removal, re-assembly and re-installation would have been the right course of action in several cases.
Plastered with cement to fill in the air holes at the surface
The concrete mix itself appeared weak in cement content, both visually and to the touch
Columns were rotated a few degrees out of true in plan view which can lead to additional torsional stresses at the junctions between columns and other structural units
Fixing of steel reinforcement within the formwork was of a poor standard

26. Fraud red flags “Outliers,” “mismatches,” etc.
Poor quality goods or works
Missing or altered supporting documents
Inconsistencies between contractor’s claims and inspections
Culture of corruption of inspectors
No costs booked by contractor for work claimed
Complaints from users