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Procurement Overview


Procurement Fraud and Corrupt Practices

Document Properties

| Relevant Policies | Roles and Responsibilities
| Flowchart | Templates and Forms
| Procedures | Additional Info. & Tools
| Inputs | Lessons
| Deliverables | On the Drawing Board


1.0 Description


Procurement is a key area where UNDP, as a public service organization, interacts financially with the private sector.  As such, it is a prime area for fraudulent and corrupt practices.  Please refer to the UNDP Fraud Policy to understand better the nature of fraud and UNDP response.  But the potential damage relating to fraudulent and corrupt practices extends well beyond financial losses.  Fraud and corruption pose serious threats to the ability of UNDP to achieve its operational objectives.  They can hamper implementation of programmes and projects.  Moreover, there is a serious risk that the very credibility of UNDP, as a trusted, efficient and effective partner is at stake.

Particular attention must be paid to UNDP procurement in emergency or crisis settings.  When UNDP operates in emergency situations, the pressures to achieve results rapidly run the risk of having fraudulent or corrupt operations.

There are several areas of risk in procurement where there is potential for fraud and corruption:

  • Gifts and benefits
  • Consistency and continuity of process
  • Communication with vendors
  • Conditions of offer and deadlines
  • Invitation to offer documentation
  • Finalizing contracts
  • Briefing and debriefing sessions
  • Documentation
  • Conflict of interest
  • Supplier probity

The purpose of this chapter is to alert UNDP personnel of areas of risk for fraud and corrupt practices in procurement, and provide guidance in the prevention, identification, proactive avoidance and handling, managing and responding to instances such fraudulent or corrupt practices.  Please be reminded that no guidance can cover all aspects, especially with fraud. 

Constant vigilance is needed, with emphasis on certain principles.  Fundamental Principles are:

  • Reinforcing ethical behavior as public servants and particularly in procurement areas, as directed by the UNDP policies.  This should be supported by adequate training and opportunities to receive advice on ethical dilemmas.
  • Ensuring adequate procurement planning such as identification and assessment of risks, capacity to address such issues in the Business Unit.
  • Ensuring separation of duties.
  • Acting in a transparent manner during procurement processes, such as posting in advance the procurement schedules and plans, solicitations and contract awards on the United Nations Global Marketplace (www.ungm.org), on the United Nations Development Programme (www.undp.org) and in other relevant web sites, newspapers and trade journals.
  • Ensuring supervision.  Managers must personally engage in a regular spot check of procurement transactions, including the regular review of the files, specification of goods and terms of references for services.  They should also check ATLAS on vendor profiles and procurement transactions for multiple purchase orders including aggregate amount that vendors have accumulated.  Finally, background checks must be conducted with all suppliers to ensure they are bona fide companies.
  • Preparing annual reports on procurement activities, paying particular attention to the number of waiver regardless of amount involved the cumulative amount of contracts per vendor, non-duplication of vendor entries, etc…
  • Reporting instances of fraud and corruption on a timely and accurate manner.

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2.0 Relevant Policies


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3.0 Flow Chart



There is no flowchart for this sub-process

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4.0 Procedures


4.1 Vulnerable Areas in Procurement

a. Conflict of interests  Any input into the procurement process by a party with vested interests in the outcome creates a conflict of interest situation.  Conflicts can be actual, perceived or potential.  These are most serious during:

b. Strategy development phase  Where inadequate or biased supply market research limits sourcing options in favour of particular products or suppliers.

  • Solicitation Phase  Development of specifications TORs or requirements that could favor a particular product or supplier.
  • Bid preparation Phase: giving any preferential or prejudicial treatment, or undue advantage of information.
  • Receiving of Bids: not properly secured bids, exposing it to risks of undisclosed / illegal tampering or modification by any party or actually performing the tampering/modification
  • Evaluation Phase  Deliberately manipulate evaluation criteria or scores to get certain results.
  • Contract management phase  The interests of the supplier, not those of the procuring entity, are served.

Action point: It is critical that all those involved in key steps of procurement process declare all interests, including actual, perceived and potential in advance.  They should also sign confidentiality agreements not to disclose information received during the process.  As of 2007, UNDP is in the process of implementing disclosures.  Finally, evaluators should be restricted to UNDP personnel, including staff members, SCs and SSAs, with government counterparts as observers.

c. Collusion between UNDP staffers or between UNDP personnel and suppliers  Practices could involve “kick-backs” or bribes, resulting in the UNDP personnel manipulating the process by restricting a list of suppliers, or restricting competition to one local area, Action point: It is critical not to allow personnel to operate alone in many steps of the procurement process, especially in evaluation of and negotiations with suppliers.  
d. Non-genuine competition  When different suppliers have the same owners or are otherwise associated, the perceived competition is not real.  Limited invitations increase exposure to this risk since the suppliers could act as a cartel to affect pricing or decisions.  Also improper granting of “sole supplier” status reduces competition and can lead to this kind of non-genuine competition.
Action Point:  Ensure a large pool of competition and avoid waiver cases, especially on “sole sourcing” basis.  However, in many supply markets, it is recognized that there may be limited sources of supply, which is a risk factor in procurement that necessitates careful supply market analysis that should be well documented and provided to the CAP/ACP for scrutiny in waiver cases.  It may also be possible to change demand attributes by considering substitute products or services which would meet the same need.  In some cases this will unleash the potential to source from more competitive markets. Search the United Nations Global Marketplace for potential suppliers and advertise procurement opportunities to allow public scrutiny of requirements.  Give opportunities to larger pools of suppliers.  Do thorough background checks on companies and look for suppliers that have different names but the same phone numbers, addresses, banking information, owners and managers.

e. Unfair advantage to individual suppliers  Information is not disclosed consistently to all potential suppliers during the solicitation process, or inside information is disclosed to a potential supplier or existing vendor.  Permitting personnel to act alone or undertaking ineffective market research can give rise to unfair advantage.
Action Point: Document the interactions with suppliers and potential suppliers in presence of more than one individual.  Make this a requirement.  Undertake structured and well-documented market research, both at planning and procurement process stages.
Avoidance of entertaining or answering queries from bidders on the phone, unless the question and the responses will also captured in detail and shared in writing to other bidders.

f. Circumventing Thresholds  This would include the thresholds for undertaking formal solicitations ($30,000) and for review by procurement review committees (CAP and ACP).  These requirements can be left unfulfilled when splitting orders, inviting LTAs that have no total value, and estimating costs below real costs to bring in low value contracts that are later adjusted. When extending or amending contracts, determine the contract history and current cumulative contract amount, and justify why the contract is being extended/amended.
Action Point : Simple reports in ATLAS allow generation of lists that involve multiple orders from the same vendor.  Comparison of ATLAS purchase orders greater than threshold against CAP or ACP on-line reports for Business Unit.

g. Inadequate knowledge of market or nature of goods/services being procured  Inadequate knowledge can lead to restrictions in competition by not properly approaching market; obtaining poor quality goods/services; not getting value for money, by making procurement decisions that result in overpricing.
Action Point:  Ensure that those undertaking procurement have adequate knowledge and skills to address the level of complexity they are dealing with.  Use the UNDP/IAPSO supply positioning and risk evaluation tool SUPREM to identify how procurement effort can be optimized to address categories of goods and services of varying degrees of procurement complexity.

h. Improper hospitality, gifts and inducements  These could be improper hospitality, bribes, incentives such as free or discounted goods and private services.           
Action Point:  Watch for excessive hospitality disguised as learning or demonstration events.  Watch for contracts that are structured around benefits such as free tickets from travel agencies, when those benefits become a key evaluation criterion.

i. Lack of substantiated need for goods or services  In addition to being wasteful, this provides an opportunity for directing disproportionate share of business to a company.
Action Point:  Check procurement strategies and plans and solicitation requirements against PRODOC.  Ask, “Does the quantity or duration seem appropriate for the need?”

j. Inadequate competency (knowledge and skills) of personnel  Procurement is a strategic and complex administrative task that requires expertise at many levels.  Low level of competency increase exposure to risks, especially supplier fraud.  This is a risk in emergency situations where UNDP may have to undertake substantial activities with limited number of staff.
Action Points:  Utilize IAPSO tool “SUPREM” for procurement planning that includes supplier positioning/risk assessment to help determine the nature of the competencies required to undertake particular procurement transactions.  Use Expressions of Interest and well-documented supply market research to get market intelligence with respect to your requirements.  UNDP SURGE project, UNDP/IAPSO and roving procurement specialists are available to help a CO for short-term needs.

k. Shortcut processes  By limiting time for bidding and inappropriately issuing expressions of interest or requests to quote, risks of fraud rise dramatically, as both suppliers and personnel in UNDP act on insufficient information.  This is a critical risk, especially in emergency situations.
Action Point:  Take time to assess the nature of the procurement challenges and the associated risk and plan.  Investment in upfront analysis and planning will actually save time even in emergency situations and mitigate the risks.


4.2 Key risks in procurement phases

a. Procurement Planning/Budgeting

  • Inadequate analysis of the supply market, organizational requirements and stakeholder needs and issues
  • No planning undertaken, thus no risks assessed
  • Needs falsely inflated or stated in a manner that permits low quality goods/services to pass
  • Requirements prepared in a manner that favors or disfavors particular suppliers
  • Poorly substantiated “justification” for “waivers”
  • Budgets set artificially high to cover kick-backs

b. Procurement Selection Process

  • Using inappropriate procurement methods with the aim of finding ways to subvert the decision-making processes.
  • Evaluation criteria designed to favor a particular supplier or disqualify others
  • Information shared to favor a particular supplier
  • Restricting tender pool of potential suppliers or creating shortlists of “weak” suppliers against a favored supplier
  • Mishandling tender documents
  • Accepting late bids/proposals
  • Rejecting legitimate bids
  • Inappropriately evaluating a supplier
  • Mishandling bids received
  • Documents submitted by bidders are fraudulent but not detected

c. Contract Award and Management (Performance)

  • Splitting procurement actions to stay below the threshold for procurement review
  • Unrealistically low bid with expectation to later amend the contract
  • Unrealistically high caliber goods/experts later replaced by inferior ones
  • Corrupt subcontractors
  • Contract is different from bid/proposal in terms of specifications, quantities, level of effort, delivery schedule and payment terms
  • Oversight and reporting requirements minimized in contract to avoid scrutiny
  • Inadequate personnel for oversight
  • Acceptance of cost overruns
  • Manipulation and destruction of supporting documentation
  • Splitting contracts/purchase orders to avoid scrutiny
  • Unjustified contract extension or amendment

4.3 What not to do in Emergency/Crisis Situations

  1. Be seen as responsive while the programme set up is rushed.
  2. Put pressure on office staff to “deliver.”
  3. Not worry if authority and reporting lines are not clear.  Just make sure there is no interaction between programme and operations personnel.
  4. Treat everything ad hoc.
  5. Buy from the first supplier you meet.  Do everything by phone and only assign one person to each procurement task.
  6. Never do background check or other checks on qualifications, financial status or ownership of suppliers.  Definitely do not check on goods received or project activities.

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5.0 Inputs


N/A

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6.0 Deliverables


N/A

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7.0 Roles and Responsibilities


See above and also Fraud Policy Statement

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8.0 Templates and Forms


  • Contact IAPSO for use of SUPREM (on-line planning and risk assessment tool) Logins are provided by IAPSO free of charge to all UN and UNDP users.  Please contact IAPSO for access information.
  • Financial Disclosure form (under construction).
  • Statement of Interest (under construction)
  • Declaration of impartiality

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9.0 Additional Information


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10.0 Lessons


N/A

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11.0 On The Drawing Board


N/A

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