Red Flags in Procurement
BIMILACI
10 & 11 May 2007
IADB – DEV/PRM & PRE/OII
Scope of the Project
¾ A joint study by:
• The Project Procurement Division (DEV/PRM);
• The Office of Institutional Integrity (OII).
¾ Analysis of some of the most common corrupt
and fraudulent practices in project
procurement
¾ Development of a mechanism to help identify
and prevent such practices.
1
Red Flags Program
z What?: Identification of practices that are or
could be a source of fraud and corruption in
Bank financed activities;
z Why?:
* Increased capacity to prevent fraud
and corruption;
* Integrity in the procurement process.
Source of Information
Based on a sample of:
52 substantiated cases
of fraud and corruption
investigated by OII
between 2004 and 2006
2
Methodology
1. Classify cases according to the different stages
of the procurement;
2. Identify the types of corrupt practices
(deviations) in each stage of the process;
3. Analyze and compare existing red flags systems
in international organizations and best practices
(WB, UN, ADB, etc.);
4. Provide new red flags matrix for the IDB.
The Procurement Process
1. The Preparation Phase
* Assessing procurement needs; 2. The Bid/Proposal
* Preparing corresponding bidding
S b i i Phase
Submission Ph
documents and procurement notices;
* Bidders submit the bidding documents to
* Publicizing the procurement notices the Executing Agency
and issuing the bidding documents or
* Bidding documents will ground the
requests for proposals
Evaluation Committee’s decision to award the
contract
3. The Bid/Proposal
E l ti Phase
Evaluation Ph 4. The Execution Phase
* Goods and Works: Borrower must carry
* Determine their responsiveness and out the contract with diligence and efficacy
decide on the award of the contract and must provide the works and the goods
* Objective application of the evaluation in the conditions agreed to in the contract
criteria detailed in the bidding document * Consulting services: Consulting firm must
or request for proposal provide the Bank with the agreed service
with diligence and efficiency
3
Preliminary Findings
Phases of the PP at which the Violations
Occurred
z 2% off th
the deviations
d i ti occur during
d i
the PREPARATION PHASE
Preparation
Phase
z 39% of the deviations occur 2%
Exe cution
during the BID/PROPOSAL Phase
SUBMISSION PHASE 41% Bid/Proposal
Submission
Phase
z 18% of the deviations occur 39%
during the BID/PROPOSAL
EVALUATION PHASE
Bid/Proposal
z 41% of the deviations occur Evaluation
Phase
during the EXECUTION PHASE 18%
What are the most common
deviations?
z Submission of falsified documents
z Manipulation of the procurement process
z Misuse of Bank’s funds
z Conflict of interests
z F d l requests for
Fraudulent f reimbursement
i b
z Misrepresentation
z Breach of confidentiality
4
How to mitigate these problems ?
z Innovative course piloted by OII and
z Training DEV/PRM based on current and up-dated
information on fraud and corruption
compiled in technical documents.
z Raise awareness among parties
discharging procurement duties or
participating in the procurement process.
(i.e. Executing Agency…).
z IT use for database of Red z Centralization of information on the
violations that occurred, and cross-
Flags referencing between OII, DEV/PRM and
other institutions such as OAS…
z Drafted by OII and DEV/PRM, under the
z Dissemination of Technical form of a report or semi-annual report,
containing relevant information
Materials illustrating the Bank’s capacity to detect,
investigate and sanction fraud and
corruption (staff, Executing Agencies…)
How to mitigate these problems?
z Monitoring the Red Flags z Annual / semi-annual retrospective
analysis to identify behaviors that could be
Program a source of fraud and corruption in Bank
financed operations.
z New sanctions procedure makes the List of
z Disclosure of sanctions and Sanctions available to the public to
increased awareness increase deterrence effect. OII’s Annual
Report provides information on prevention
of corruption
z List of Sanctions - [Link]/oii
z OII Annual Report
5
Questions
Contacts
Sabine Engelhard Roberto de Michele
Senior Procurement Specialist Senior Policy Advisor
Chief A.I.
Project Procurement Division Office of Institutional Integrity
Inter-American Development Bank Inter-American Development Bank
Washington, DC Washington, DC
Email: sabinee@[Link] Email: robertodem@[Link]
