Procurement fraud - what to believe?

14 December 2017

Throughout RSM’s experience of providing counter fraud services to the NHS, one of the constant questions we have posed is ‘what is the prevalence of procurement fraud in the NHS?’

Procurement fraud is defined as:

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

Recent publications have estimated the level of procurement fraud in the NHS as anywhere between £1.7 billion in 2017 (Annual Fraud Indicator Review 2017, UK Fraud Costs Measurement Committee) and £252m (Operational Strategy 2017-2020, NHS Counter Fraud Authority). Whilst the methodologies behind these estimates obviously differ, it is clear procurement fraud is deemed to be a key fraud risk for the NHS.

With this in mind, why is procurement fraud reporting still at such a low level? In 2015/16 NHS Protect (now NHS Counter Fraud Authority (NHSCFA)) reported that only 3 per cent of all cases reported related to procurement fraud across the NHS in England. Of the 144 procurement-related allegations that were reported, only 37 led to a further investigation. 2016/17 did see an increase in the number of referrals across RSM’s own client base in this area of 160 per cent against the previous year, but procurement fraud still only accounted for 8 per cent of total fraud referrals.

The Public Spend Forum identified the following procurement fraud classifications:

Eliminating or reducing competition – through the use of tender waivers, extending contracts without consideration of a competitive process; and influencing procurement specifications;

Biased Supplier selection – favouring of suppliers by providing insider information and biased evaluation process including marking of the bids;

Contract management – non-delivery of the terms of the contract specification, changes to contracts to favour the supplier and extension of contract to benefit the supplier; and

False charging – charging for goods and supplies that weren’t provided or at a higher price than the contract, invoicing of goods that weren’t required and supplied; invoicing from a fraudster that is not a supplier at all and diversion of payment.

Historic controls to prevent fraud still hold true, and their success may be the reason why reported procurement fraud is so low. The importance of segregation of duties through the procurement process, the ongoing contract management and payment is vital, as is the need to stick to the ‘No Purchase Order No Pay’ policy that we are seeing across our client base.

However, there are some areas which we believe should receive a greater focus on to further strength organisation controls and reduce likelihood of fraud. Download the full report to find out more.