Red Flags in Procurement

1
Red Flags in Procurement

• BIMILACI
• 10 11 May 2007
• IADB DEV/PRM PRE/OII

2
Scope of the Project

• A joint study by
• The Project Procurement Division (DEV/PRM)
• The Office of Institutional Integrity (OII).
• Analysis of some of the most common corrupt and
  fraudulent practices in project procurement
• Development of a mechanism to help identify and
  prevent such practices.

3
Red Flags Program

• What? Identification of practices that are or
  could be a source of fraud and corruption in Bank
  financed activities
• Why?
• Increased capacity to prevent fraud and
  corruption
• Integrity in the procurement process.

4
Source of Information

• Based on a sample of
• 52 substantiated cases
• of fraud and corruption
• investigated by OII
• between 2004 and 2006

5
Methodology

• Classify cases according to the different stages
  of the procurement
• Identify the types of corrupt practices
  (deviations) in each stage of the process
• Analyze and compare existing red flags systems in
  international organizations and best practices
  (WB, UN, ADB, etc.)
• Provide new red flags matrix for the IDB.

6
The Procurement Process

• 1. The Preparation Phase
• Assessing procurement needs
• Preparing corresponding bidding
• documents and procurement notices
• Publicizing the procurement notices and
  issuing the bidding documents or requests for
  proposals

• 2. The Bid/Proposal Submission Phase
• Bidders submit the bidding documents to
  the Executing Agency
• Bidding documents will ground the Evaluation
  Committees decision to award the contract

• 3. The Bid/Proposal Evaluation Phase
• Determine their responsiveness and
  decide on the award of the contract
• Objective application of the evaluation
  criteria detailed in the bidding document or
  request for proposal

• 4. The Execution Phase
• Goods and Works Borrower must carry out
  the contract with diligence and efficacy and must
  provide the works and the goods in the conditions
  agreed to in the contract
• Consulting services Consulting firm must
  provide the Bank with the agreed service with
  diligence and efficiency

7
Preliminary FindingsPhases of the PP at which
the Violations Occurred

• 2 of the deviations occur during the PREPARATION
  PHASE
• 39 of the deviations occur during the
  BID/PROPOSAL SUBMISSION PHASE
• 18 of the deviations occur during the
  BID/PROPOSAL EVALUATION PHASE
• 41 of the deviations occur during the EXECUTION
  PHASE

8
What are the most common deviations?

• Submission of falsified documents
• Manipulation of the procurement process
• Misuse of Banks funds
• Conflict of interests
• Fraudulent requests for reimbursement
• Misrepresentation
• Breach of confidentiality

9
How to mitigate these problems ?

• Innovative course piloted by OII and DEV/PRM
  based on current and up-dated information on
  fraud and corruption compiled in technical
  documents.
• Raise awareness among parties discharging
  procurement duties or participating in the
  procurement process. (i.e. Executing Agency).
• Centralization of information on the violations
  that occurred, and cross-referencing between OII,
  DEV/PRM and other institutions such as OAS
• Drafted by OII and DEV/PRM, under the form of a
  report or semi-annual report, containing relevant
  information illustrating the Banks capacity to
  detect, investigate and sanction fraud and
  corruption (staff, Executing Agencies)

• Training
• IT use for database of Red Flags
• Dissemination of Technical Materials

10
How to mitigate these problems?

• Monitoring the Red Flags Program
• Disclosure of sanctions and increased awareness

• Annual / semi-annual retrospective analysis to
  identify behaviors that could be a source of
  fraud and corruption in Bank financed operations.
• New sanctions procedure makes the List of
  Sanctions available to the public to increase
  deterrence effect. OIIs Annual Report provides
  information on prevention of corruption
• List of Sanctions - www.iadb.org/oii
• OII Annual Report

11

• Questions

12
Contacts

• Sabine Engelhard
• Senior Procurement Specialist
• Chief A.I.
• Project Procurement Division
• Inter-American Development Bank
• Washington, DC
• Email sabinee_at_iadb.org

• Roberto de Michele
• Senior Policy Advisor
• Office of Institutional Integrity
• Inter-American Development Bank
• Washington, DC
• Email robertodem_at_iadb.org