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Sunday, September 5, 2010

Three for the road

A quick look at procurement issues in Trinidad & Tobago, Texas and the UK.

Duties of fairness (Trinidad & Tobago)
Think of the word procurement, two things come to mind.

The first is the Commission of Inquiry into the Construction Sector. It has taught us more than anything that shortcuts don’t work – unless, of course, it’s an abbreviated but approved version of a lengthier process.

The other is Margaret Rose. At that very inquiry, she represented former Minister of Trade Dr Keith Rowley. But beyond the lingering image of her cross-examining members of the Urban Development Company of Trinidad and Tobago and Government ministers on her client’s behalf, Rose’s association with proper practice and procedure has more to do with understanding that law.

“When I went to that Commission of Inquiry…I was asked to advise the Government and asked by the Commission on all these issues of procurement fraud, bid rigging and conspiracies…all of which I was not prepared,” she said.

Her legal education did not prepare her for that either since there were no courses for procurement law or Government tendering.

But she did her research, including a short course at York University’s Osgoode Hall Law School in Canada and attending conferences abroad, and realised how much this country was missing.

She noted globally, post 1990, the procurement function was no longer viewed as a “back office” purchasing administrative function. Even the multi-lateral bodies such as the World Trade Organisation, the United Nations and the European Union started putting procurement rules and conditions in place.

Her passion for this area allowed her to join forces with two other professionals to form the Caribbean Procurement Institute. In December 2006, Jamaican banker Woodrow Whitely, Independent Senator Helen Drayton and Rose gave birth to the organisation, which serves as adviser and consultant on the procurement process.

FORMER SENIOR EMPLOYEE WITH U.S. MILITARY CONTRACTOR PLEADS GUILTY TO BRIBERY SCHEME RELATED TO CONTRACTS IN SUPPORT OF IRAQ WAR (Texas)
A former senior employee of a U.S. military contractor pleaded guilty today to conspiracy to pay $360,000 in bribes to U.S. Army contracting officials stationed at a U.S. military base in Kuwait, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division.

According to court documents filed today in U.S. District Court for the Southern District of Texas, Dorothy Ellis, 53, of Texas City, Texas, was employed by former U.S. military contractor Terry Hall. As Hall’s most senior employee, Ellis’s responsibilities included serving as the liaison between Hall and U.S. Army contracting officials stationed at Camp Arifjan, a U.S. military base in Kuwait.

From the spring of 2004 through November 2007, Hall operated and had an interest in several companies, including Freedom Consulting and Catering Co. (FCC) and Total Government Allegiance (TGA). At various times during this period, these companies provided goods and services to the U.S. Department of Defense (DoD) and its components based on a blanket purchase agreement (BPA) to deliver bottled water and a contract to construct a security fence in Kuwait and elsewhere.

According to court documents, Hall obtained the calls made under the bottled water BPA and fence contract by bribing certain U.S. Army contracting officers, including former Majors James Momon and Christopher Murray. Hall, assisted by Ellis and Hall’s business partner, paid Momon approximately $330,000 and paid Murray approximately $30,000. In exchange for these bribe payments, from January 2006 through May 2006, Momon arranged for the DoD to pay Hall’s companies more than $6.4 million through the bottled water BPA, and Murray assisted in the award of the security fence contract.

Ellis admitted that she participated in the bribery scheme by providing Momon and Murray access to secret bank accounts established on their behalf in the Philippines, which enabled Hall and others to transfer bribe payments to them. Ellis also admitted that she obtained confidential Army contract pricing information from Momon that was designed to give Hall an unlawful advantage in the bidding process for an ice contract from the DoD. In exchange for her assistance in the bribery scheme, Ellis received a $100,000 “bonus” from Hall in August 2006.

Stamping Out Procurement Fraud in the UK and Beyond (UK)
I remember as a kid, when my father, who ran the printing and copy shop for a major university, told us about the good-will gestures that various vendors made to him. Fortunately, to the best of my knowledge, he turned down all of them. Yet procurement fraud remains a clear and present danger to all companies, non-profits, universities, governmental agencies and departments. It's something that is rarely written about, but that is clearly on the minds of executives. In past lives, I've even been asked if I would contribute something as part of a deal back to a party who helped facilitate a transaction (knowing me, I hope you could guess my response).

Given the scarcity of coverage on the subject, it's invaluable when a publication with the depth and credibility of CPO Agenda tackles the subject, as they did in the recent above-linked article. Most recently in the US, managers at Best Buy, were accused and admitted to conspiring with suppliers in a long-term fraud case. And in the UK, as CPO Agenda suggests, more incidents are coming to light, in part as a result of new anti-fraud legislation focused on foreign bribery and corruption. This includes "bridge-building firm Mabey & Johnson," who "became the first large British company to be convicted of foreign bribery after admitting that it had paid bribes to ministers and officials in Africa, the Caribbean and the Middle East to secure orders."

Others include BAE, which "agreed to pay nearly £300 million in fines in the US and the UK over corruption offences" and "three directors of the French engineering conglomerate Alstom were arrested in an operation by the UK's Serious Fraud Office ... over alleged bribery payments uncovered in an investigation carried out jointly with Swiss authorities." Many other companies and executives are getting caught up in these scandals on a global basis. But how can companies identify whether or not they're likely victims of procurement fraud? The UK's seriously named Serious Fraud Office suggests, according to the article, that "abnormal cash payments, pressure for payments to be made urgently or ahead of schedule, payments being made through a third-party country and abnormally high commission percentages being paid," are all potential markers of fraudulent activity.

In my own experience, there are multiple stages to identifying potential fraudulent activities. The most important first step is to attempt to stamp out fraud in the first place by encouraging transparency in negotiations -- often using an online tool with multiple potential vendors. Cutting into supplier margins reduces the amount of capital at play for potential kickbacks, among other benefits. Following this, it goes without saying that a closed-loop requisitioning, invoicing and payment process can play a key role as well. But the most important element of fraud detection and prevention ultimately comes down to good old-fashioned detective work and example making. In this area, there's no substitute for the ability to drill into spending, payment, vendor and related information -- not to mention working with local authorities to locate other data to determine if potential suspects are leading a lifestyle outside of their expected income bounds.

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