According to the ACFE 2016 Report to The Nations, a purchasing function remains the highest risk of corruptions. Moreover, bidding misconducts are one of the most common fraud scams found in purchasing activities. Our investigation specialist, Sean Chen, based in our Shanghai office, offers tips for preventing bidding irregularities.
Marc, a corporate auditor, had just settled into his office early Monday morning when a corporate compliance officer called. It was the last news Marc wanted to hear. The bid that Marc reviewed had to be recalled because of a leakage of bid prices.
What puzzled Marc the most was that he had no idea what went wrong.
A bid requires a great amount of detailed work to get it done correctly. The nuts and bolts of the bidding process can easily slip away without notice and result in a fatal blow to the integrity of a bid.
To make sure your bid doesn’t fall through the cracks, include these four details:
Set the ground rules and enforce them
The ground rules of a bid must be treated seriously. Any soft tone signals a yes for a breach. For instance, one ground rule may be that any forms of unauthorised contact with bidders shall be prohibited at all times during a bid. As such, mobile devices or any other communication devices would not be allowed in a bidding session. To enforce the ground rule, a formal announcement of the rules before kicking off a bid is a must to signal a firm stance against any breaches. If a breach does occur, a series of actions needs to be enforceable, including an immediate recess of a bid session, or even a recall of the session if necessary. Violators should be disciplined (e.g. dismissal or removal from a bid) with no exceptions.
Pay close attention to “how” and “when” members of an evaluation committee (EC) are appointed
Picking the right members of an EC largely determines the integrity of a bid. Despite the fact that EC selection has always been a focus in a bidding process, critical details regarding “how” and “when” members are appointed are found commonly lacking. A cosy relationship between EC members and bidders is not always preventable, so to reduce that chance, select EC members on a random basis. Another option is to develop a pool of specialists, enabling the ability to choose an EC member whenever there is a need. Also, the timing of the selection should be as close as practically possible to the date of a bid opening to prevent any unauthorised communication.
Be wary of a pre-screening process
Some organisations adopt a pre-screening process to shortlist prospective bidders. Simply put, they issue an entrance ticket to a bid. This process is oftentimes left out because 1) it happens before a bid starts, and 2) it is informal. A pre-screening process, in fact, is easily manipulated without notice by favouring one bidder over the other. Setting an unnecessary bar for a bid without justification is a red flag. A key to prevent this issue is to require documentation of eligibility for prospective bidders. This illustrates the rationale in adherence of bid specifications as well as endorsement by personnel independent of both purchasing and procuring units.
Be prepared for a tied bid
It is not ideal, but this can happen. A tied bid means two or more bidders’ offerings have statistically scored a tie. When this happens, a tiebreak procedure will come into play. An open discussion among EC members is likely to happen in the procedure. The key element of it is to make sure no one steals the show by dominating the discussion and rushing a decision that could favour one bidder over another. Casting a vote among EC members on tied bidders is one of the preventive mechanisms to assure EC members’ voices are equally heard and assessed.
Be vigilant with the nitty-gritty of a bidding process will prevent small things from turning into a big disaster, like they did for Marc.
The Red Flag Group® has a dedicated team of fraud investigation practitioners in providing fraud risk advisory and investigation services. For more information about our investigation and fraud examination services, please contact firstname.lastname@example.org