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Bringing government procurement fraud out of the shadows
By Jen Dunham, Certified Fraud Examiner, SAS Security Intelligence Practice
Organizations around the world face various risks to their operations, both internally and externally. With what seems like daily cybersecurity breaches across nearly every industry and the EMV credit card chip upgrade, other risk areas of fraud can often go unaddressed. Although procurement fraud is often overlooked, it can leave an organization open to significant losses.
At the time of this writing, we are in the final days of fiscal year 2015 for the US federal government, which generally is an extremely busy time for procurement officers and government program offices alike. Feds scramble to “use or lose” their allocated funding in an effort to maintain their current budgets for the following year. Continuing resolutions further challenge government entities, forcing them to estimate spending at current levels until a budget is passed, which can throw off planned efforts.
While procurement fraud investigations can be quite in-depth and complex, the reality is we can detect and deter procurement fraud today.
Vulnerabilities for procurement fraud, waste and abuse
In the mad rush to ensure all procurements are on the books before fiscal year-end, one can imagine the opportunity for fraud, waste and abuse. Pressure to process larger than normal amounts of purchasing documentation can leave oversight lacking. This time of year, it’s likely that brand loyalty buys – prohibited by the Federal Acquisition Regulation (FAR) – can be overlooked and other competitive practices sidelined.
Although the Feb. 11, 2015, GAO report High-Risk Series: An Update (GAO-15-290) doesn’t specifically mention the potential for fraud, certainly the possibility of even a small amount of fraud within the $80 billion annual information technology investment could be alarming.
Of this $80 billion IT acquisition budget, a fraud rate of only 0.5 percent would equal $40 million in taxpayer dollars. With the US government already struggling to reduce costs, find efficiencies and reduce the growing deficit, a potential $40 million in savings within just one category of fiscal spending can make a large difference. Looking at the overall 2015 US federal government budget of $3.8 trillion, that 0.5 percent – a very conservative assumption – results in $1.9 billion in potential fraud a year, and we’re not even addressing tax or benefit fraud!
The complexities of procurement fraud detection
Any taxpayer might wonder why we weren’t more aggressive with safeguarding against procurement fraud. But the truth of the matter is procurement fraud is a complex challenge that can involve internal employees seeking financial gain, collusion between government procurement officials and external enterprises – or even collusion among vendors within the marketplace. Being able to detect potential fraud within the procurement process seems to be a difficult task requiring scrutinizing massive amounts of data, connecting dots that may be inferred, and applying reasoning across a large landscape of varying scenarios to root out potential deception, hidden relationships or personal agendas.
While procurement fraud investigations can be quite in-depth and complex, the reality is we can detect and deter procurement fraud today. Thanks to technological advances, e-commerce and digitization of paper records, we now have systems that can capture and organize all this data. Even in situations where information is collected with spreadsheets, potential fraud can be detected.
Shining a spotlight on potential risk
With the data readily available in a system, spreadsheet or across a variety of formats, solutions such as SAS® Fraud Framework can be used to gather, normalize, aggregate and – most importantly – apply advanced analytics to find unusual business practices, suspicious variations in market pricing, anomalies within the bidding process, and a multitude of other oddities. When the data points are combined and scored, the result is in an enterprise picture that shines a spotlight on potential risk. This insight gives an organization an unprecedented advantage to not only detect potential fraud or corruption throughout the entire procurement cycle, but also discourage it. What you then have is a much-needed deterrence mechanism within an environment that has been known for minimal controls.
A penny saved is a penny earned
It’s time we address procurement fraud the same way we address tax fraud, benefit fraud or insurance fraud – strategically and proactively. Suspecting trusted employees or questioning their work may seem uncomfortable in day-to-day activities. However, it’s likely to be far more uncomfortable for everyone involved when answering to criminal investigators, executive management, congressional forums and US taxpayers regarding every single detail potentially relevant to procurement fraud that has occurred over what may be an alarming amount of time.
Jen Dunham is a Certified Fraud Examiner (CFE) with the SAS Security Intelligence Practice. She supports SAS government customers around the world, contributing her experience in the US Army as an all-source intelligence analyst and her work with the law enforcement, defense and intelligence communities.