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Procurement Fraud

ACON 058


General Information

Procurement Fraud is any methodology or plan designed to defraud a buying activity, or degrade the integrity of the acquisition process. It is also defined as “dishonestly obtaining an advantage, avoiding an obligation or causing a loss to public property or various funds during the procurement process by public servants, contractors or any other person involved in the procurement. It can occur within or outside the Government by vendors/contractors or by federal, state or local procurement personnel. The real cost of procurement fraud is an erosion of trust in the federal acquisition process. The DOD alone spends over $650 billion annually in goods and services. Vendors need to confident that the systems designed to spend those funds is fair and equitable. Taxpayers need to be comfortable knowing government employees are performing acquisition tasks in the best interests of the government, and not their own.

Procurement fraud can take many forms. from taking bribes, to bid rigging, and to unjustified sole source selection. Here are some (but not all) examples of procurement fraud:

Bribery occurs when a government employee or contractor accepts something of value in exchange for preferential treatment. An example of bribery is if money is accepted in exchange for the awarding of a contract.

Kickbacks are defined as receiving something of value for the purpose of influencing an official act or business decision. An example would be a contacting officer awarding a contract for $50,000 worth of materials that only cost $30,000. The supplier then gives him $20,000.

Rigged Specifications are bids or proposals that contain specifications which are tailored to meet the qualifications of a particular bidder. An example would be a solicitation containing requirements so narrow or unusual that only one company can fulfill them.

Leaking Bid Data occurs when contracting or other personnel involved in the process, share information to help a favored bidder formulate a potential winning proposal. An example would be a contract specialist providing information not available to the general public, in exchange for cash or gifts.

Manipulation of Bids is defined as contracting personnel tampering with bids after receipt to ensure that a favored contractor is selected. An example would be bids being lost, changed after receipt by the government, or qualified bidders are disqualified for questionable reasons.

Product Substitution occurs when contractors deliver goods to the Government which do not conform to contract requirements without informing the Government. An example would be a supplier delivering cheaper non-fire retardant tiles instead of more expensive fire retardant ones indicated in the contract.

Co-Mingling of Contracts is defined as contractors with multiple, similar work orders charging the same personnel, fees, or expenses to more than one of the work orders, resulting in overbilling. An example would be billing for one engineer for 120 hours in a week, spread among four different contracts.

Many of the different types of procurement fraud can occur simultaneously. It is not be unusual to see bribery and kickbacks transpiring within a product substitution scenario. A contractor may pay a federal employee the cost difference between the substituted products. Other potential sources of  procurement fraud include: 

  • Cost Mischarging
  • Collusive Bidding
  • Conflicts of Interest
  • Defective Pricing
  • Deliberately failing to meet specifications 
  • Co-mingling of contracts
  • Purchase for personal use
  • Phantom Vendors/Fictitious invoicing
  • False Statements and Claims
  • Excluding Qualified Bidders