Procurement FraudInvestigative Techniques

The Bureau of Special Investigations (BSI) is composed

of a team of dedicated and highly trained professional investigators who help to

improve State Government and make it more efficient.

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Bureau of Special Investigations

BSI investigates cases related to:

Violation of Commonwealth policies, rules, and regulations

Abuse of authority or misuse of property by Commonwealth Employees

Contract fraud and/or irregularities by Commonwealth Employees or Vendors

Commonwealth Employee Misconduct Mismanagement of funds within Commonwealth

agencies under the Governor's jurisdiction

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Bureau of Special Investigations

Office of Inspector General 555 Walnut Street

Harrisburg , PA 17101 USA

To report welfare fraud, call 800-932-0582

To report misconduct by Commonwealth of Pennsylvania employees, call 877-888-7927

For general inquiries, please call 717-787-6835

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Commonwealth of Pennsylvania

Procurement

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Contracting to acquire goods or services

Often based on relationships Decisions to acquire made objectively and

subjectively Purchases dictated by company/Government

policies and procedures Conflicts arise between operations and financial

controls Process is often challenged by various work-arounds

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Procurement Process

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Procurement Fraud

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Definition:Unlawful manipulation of the process to

acquire goods or services to obtain an unfair advantage.

Dishonestly obtaining an advantage, avoiding an obligation, or causing a loss to public property through various means during procurement process by public servants, contractors, or any other person involved in the procurement.

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Procurement Fraud

Investigating Procurement Fraud:

Document AnalysisComputer ForensicsData Analysis

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Procurement Fraud

A technique used to gather information during the requirements elicitation phase of a project.  It describes the act of reviewing the existing documentation of comparable business processes or systems in order to extract pieces of information that are relevant to the current project.

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Document Analysis

The application of investigation and analysis techniques to gather and preserve evidence from a particular computing device in a way that is suitable for presentation in a court of law.

The goal of computer forensics is to perform a structured investigation while maintaining a documented chain of evidence to find out exactly what happened on a computing device and who was responsible for it.

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Computer Forensics

The reduction and organization of a body of data to produce results that can be interpreted by the researcher; a variety of quantitative and qualitative methods may be used, depending upon the nature of the data to be analyzed and the design of the study.

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Data Analysis

Procurement Fraud Schemes

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Conflict of Interest Phantom Vendor Split Purchases Kickbacks Personal Purchases Duplicate Payment Defective/Substituted Products Fictitious Invoices Bid Rigging

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Procurement Fraud Schemes

Description: Misusing position to award contracts to firms in return for personal gain (money, family employment, or other gratuities).

Indicators: Lifestyle changes Refusal to change vendors Failure to enable bidding procedures Continuous use of same vendor Significant increase in pricing Increase in product complaints Decline promotions

* Case Example

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Conflict of Interest

Description: Employee establishes a fictitious vendor and submits false invoices for payment (or invoice may not exist to support payment).

Indicators: Photocopied invoices Lack of invoices to support payments Employee address matches vendor's address

* Case Example

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Phantom Vendor

Description: Purchases made on the same day from the same vendor that

appear to circumvent single purchase limits, i.e. splitting the transaction into more than one segment to avoid the requirement to obtain competitive bids or a budget ceiling.

Indicators: Multiple invoices dated the same day for the same product Lack of invoices to support payments Sequential or nearly sequential purchase/vendor invoice

numbers

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Split Purchases

Description: Often facilitated through accounts payable. A company or

individual submits an invoice for services that never occurred, or the invoice submitted is inflated by the amount of the kickback sent to the conspiring employee.

Indicators: Paid invoices that lack additional appropriates supporting

documentation Growing frequency of purchases from one vendor Award contracts without bids Increase in services Continued use of same vendor

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Kickbacks

Description: Employee utilizes company/Government funds to

purchase personal items for self use or fraudulent gains.

Indicators: Employee address matches vendor's address Altered or bogus support documentation Initiated fraudulent purchase requisitions Supplier not known Post Office box addresses

* Case Example

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Personal Purchases

Description: Duplicate payments made to a vendor without services rendered to justify the second payment.This fraud is normally committed by a vendor with the collusion of an employee.

Indicators: Multiple duplicate payments of the same or similar amounts to a vendor for the same invoice number

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Duplicate Payment

Description: When a vendor contractually consents to supply products using a

certain grade, quality of parts, materials from designated companies or set standards, then fails to comply with the contract. These vendors often decide it is more profitable to use or substitute inferior parts or parts not made by authorized companies. 

Indicators: Lifestyle changes Refusal to change vendors Failure to enable bidding procedures Continuous use of same vendor Significant increase in pricing Increase in product complaints and/or product returns

* Case Example

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Defective/Substituted Products

Description: Suppliers or contractors intentionally submit false (meaning that no

services were provided), duplicate or inflated invoices.  The scheme can involve a contractor acting alone or in collusion with an employee of the victim organization who shares in the profits.

Indicators: Invoiced goods or services cannot be located in inventory or

accounted for No receiving report for invoiced goods or services Discrepancies between invoice and supporting documents Questionable or no purchase order for invoiced goods or services Invoice prices, amounts, item descriptions or terms exceed or do

not match

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Fictitious Invoices

Description :Bid rigging is a form of collusive price-fixing behavior by which

firms coordinate their bids on procurement or project contracts, including arrangement of bidding process to guarantee selection of a vendor.

Indicators : Allowing rebids to selected vendors Rotation of bids Supplying faulty/inferior materials Excessive control over selection process Continuous use of vendor without business reason Increased pricing Substandard products

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Bid Rigging

Red Flags

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Unusual or unauthorized vendors Large gifts and entertainment expenses Unusual increase in vendor spending Round-dollar amounts Copies of supporting documentation in lieu of originals Duplicate payments Tips and/or complaints Sequential invoices paid Unusual/large/round-dollar amounts paid Payments just under authorization level Employee-vendor address match Multiple invoices paid on same date Slight variation of vendor names

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Procurement Fraud Red Flags

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Questions?

Office of Inspector General 555 Walnut Street

Harrisburg , PA 17101 USA

James H. Timko | Special Assistant to the Inspector General Jatimko@pa.gov-Phone: 717.787.6835 | Fax: 717.724.6878

Robert A. Zeplin, CFE | Special Investigator 2rzeplin@pa.gov -Phone: 717.783.7813 | Fax: 717.724.6828

Martin B. Molitoris | Special Investigator 2mmolitoris@pa.gov -Phone: 717.214.1299 | Fax: 717.724.6833

To report welfare fraud, call 800-932-0582

To report misconduct by Commonwealth of Pennsylvania employees, call 877-888-7927

For general inquiries, please call 717-787-6835

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Contact Information