The Need for Contracts Management in Reducing the

Risk of Fraud in Public Expenditures

Dave Banarsee, CAMS-FCI

2019

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Table of Contents

1. Executive Summary............................................................................................ 2

2. Background ........................................................................................................ 3

3. Public Sector Contract Formation Types ............................................................ 4

4. Public Sector Contract Management Maturity ................................................... 5

5. Public Sector Contract Management Deficiency and the Risk of Fraud ............. 9

6. Effective Public Sector Contract Management ................................................. 10

7. Conclusion ....................................................................................................... 12

References ....................................................................................................... 14

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1. Executive Summary Post contract award, governments have fallen short in managing contracts to ensure timely

delivery, as per contractual specifications, quality and, within the agreed price. Contract

Management Practice Guidance, a document (2018) issued by the World Bank, stated that

“contract management also involves a level of flexibility by both parties and a willingness to adapt

the contract terms to reflect changing circumstances, as appropriate.” However, this flexibility

requires an approach that is more advanced than routine contract administration, and

governments may not necessarily emphasize, nor have the requisite governance structure to

achieve this. Therefore, without the capability to effectively and efficiently manage performance,

delivery, and payment, the risk of fraud and corrupt practices increases.

To minimize this risk, red flags are used to identify corrupt practices in public procurement, but,

where systemic corruption prevails, the task of anticorruption enforcement becomes difficult

because “many parts of the government that are supposed to prevent corruption have

themselves become corrupted—budgeting, auditing, inspection, monitoring, evaluation, and

enforcement” (Klitgaard, 2004). A research report (2014) issued by GIABA,1 an FSRB,2 presented

an analysis of how this crime feeds into money laundering, in a case study of Nigeria. The report

identified that insufficient and poorly implemented institutional safeguards and a lack of

transparency in the procurement process have allowed politicians and public officeholders to

award contracts and influence the process by relying on illicit acts that masquerade as legitimate

procedure. As a result, corrupt officeholders, particularly politically exposed persons (PEPs) in

conjunction with professional consultants and contractors with connections to the officialdom,

exploit both local and transnational financial networks and systems to manipulate the regulations

designed to prevent money laundering. However, the biggest contributory factor to the incidence

of fraud is the lack of internal controls or, where these controls exist, their deliberate flouting.

Notwithstanding this, contractors are essential to all governments from the perspective of the

economic ecosystem. They provide the resourcing necessary to complete mammoth

infrastructure projects, targeting the socio-economic goals of a nation while allowing

governments the opportunity to identify cost structure, realign competencies, reassess risk

exposure, and identify operational goals. However, with very little information available in the

public domain that speaks to typologies when combating procurement fraud, public officials may

grapple with the ability to understand and mitigate perceived risks. With the aid of targeted

actual situations, this paper is intended to discuss, with recommendations, the need for

governments to develop an adequate framework that complements proper contract

management practices as means to reducing the risk of fraud and mismanagement of funds in

the public sector.

1 Inter-Governmental Action Group against Money Laundering in West Africa, Money laundering related to fraud in public procurement in West

Africa: A case study of Nigeria. 2 Financial Action Task Force (FATF) Style Regional Body (FSRB)

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2. Background A key finding from the government and public sector extract from PwC’s “Global Economic

Survey” reported that government and state-owned enterprises on average experienced a higher

incidence of fraud than did listed private entities. A case study of the Australian government and

state-owned enterprises taken from this survey, together with an ANAO3 report, indicated that

procurement and contract management fraud is one of the top fraud risks, and is more prevalent

when “power is centralized unduly: for example, when a single individual has the power to make

decisions on procurement, contracting, and approval.” As a consequence, standard contracting

procedures, together with policies and rules to minimize fraud and corruption, are bypassed. This

survey also reported that senior staff are more likely to commit fraud in government and state-

owned enterprises than in any other industry. However, without a governance structure that

reinforces management’s messages of honesty and integrity, together with inadequate

contracting management practices and flawed processes, there will be incomplete associated

records and insufficient evidence that can result in an unsuccessful investigation or prosecution.

Therefore, to combat a proliferation of fraud and corruption, and successfully prosecute such

individuals with fiduciary responsibilities that commit those acts, countries around the world are

increasing and tightening regulation and legislation. Without a global change in attitudes toward

this offense, it becomes impossible to instigate any civil recovery action, and damage inflicted

can be more than just economic cost, but there will be collateral damage as well. This damage

can be defined as careers being ruined and negative media coverage that can deter suppliers and

customers, and affect global standing on the world stage.

In a CIPS November 2018 article,4 “a lack of contractor control has been blamed in an auditor’s

report for California’s bullet train project seeing billions of dollars of cost overruns and significant

delays.” It was stated that in an effort to beat deadlines for spending federal grant funds, the

California High-Speed Rail Authority began awarding contracts long before it had finished

planning or assessing potential risks to cost and schedule. In addition, lack of oversight of

contractors was “firmly blamed” for pushing the cost upward by $49 billion over and above

secured funding of $28 billion. This can be viewed as a classic example that reinforces the impact

that contract management has in deriving value for money in the public sector in pursuit of a

socio-economic goal. That is, the train was debated as an alternative to expanding airports and

building new freeways to meet growing demand; however, the auditor’s report identified that

the authority needs to improve its contract management to control soaring costs, and without a

schedule to monitor contract managers’ compliance, it becomes difficult to hold contract

managers accountable for performing the duties assigned by the authority.

Specific areas of concerns identified in managing contracts within the public sector include:

Contract managers assigned to projects do not serve in contract management roles full time.

3 Australian National Audit Office Annual Reports 4 Chartered Institute of Procurement and Supply (CIPS); see article at https://www.cips.org/en/supply-

management/news/2018/november/contract-management-must-improve-on-bullet-train-to-nowhere

4

External consultants provided much of the oversight for large contracts.

There is limited evidence for reviewing the accuracy of monthly invoicing.

Contract managers do not maintain tracking logs of deliverables and could not demonstrate

quantity and quality of the contracted work.

Contract Management Support Unit(s) established to oversee contracting “performs only

weak and inconsistent oversight.”

Amendments to contracts for additional time and funding are usually based on contractors’

own estimates and projections of associated costs and delays.

It is important to recognize that these areas of concern can also be used as indicators when

identifying, assessing, and understanding the risks to which contract management exposed. As

stated by ACAMS,5 “although there is no exhaustive list of tried-and-true suspicious activity

indicators for business, there are many common indicators of financial crime, money laundering,

and terrorist financing” that an entity can be ready for.

3. Public Sector Contract Formation Types Understanding the risks begins with identifying and assessing mitigating strategies from the start

of procurement planning to formation of contract types to close out. A wide range of contract

types within the public sector, regardless of the terminology in any specific country and within

the confines of policy and law, are usually categorized under the umbrella known as Public-

Private Partnership (PPP). For example, in the United Kingdom, government pays PPPs for new

assets known as private finance initiative (PFI), while existing assets (hospitals, railways) are

franchises. In Brazil, Chile, and France, the term concession6 is used. Also, CIPS has recommended

as best practice to consider the use of cooperative procurement contracts, on a case-by-case

basis and only after proper due diligence has been performed. These contract types combine the

requirements of two or more public procurement entities as a means to leverage supply chain

advantages, reduce expenses, and allow other government entities to piggyback on the same

pricing and terms of the originating contract. This practice achieves economies of scale that

would not otherwise be possible, if each entity competed on its own, and allows for increased

due diligence in monitoring potential instances of fraud.

Not all government entities would necessarily identify or agree on the most suitable approach

when entering into contracts for the delivery of public services. For both PPPs and cooperative

contracts, policy makers must identify that the demand for the services delivered by the project

will be sustained over the life of the contract; the private party should be able to accept

responsibility for service delivery over its term; and the availability of conditional financing should

influence contractual arrangements. However, poor or unlawful procurement practice from the

onset can eventually be compounded with poor contract management and result in fraud. For

example, a September 2017 article7 published by CIPS reported that the Wales Audit Office found

5 Association of Certified Anti-Money Laundering Specialists, Study Guide, sixth edition. 6 PPP Knowledge Lab; see https://pppknowledgelab.org/guide/sections/6-ppp-contract-types-and-terminology 7 CIPS’s Supply Management; see https://www.cips.org/en/supply-management/news/2017/september/welsh-health-board-refers-contracts-

to-corruption-watchdog/

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that Cardiff and Vale University Health Board (UHB) failed to comply with its own procurement

procedures when awarding contracts to a consulting firm, making both the contract and

subsequent payments potentially unlawful, and leaving UHB open to unnecessary financial and

reputational risk.

Some of the red flags that procurement specialists may consider as indicators to mitigate risks at

the pre–contract formation stage may include:

Procedure was not followed, e.g., procurement code of conduct, when dealing with a

shortened time span or accelerated tender process.

There may be connections between bidders so as to influence winning bid and thwart

competition.

Bids were still accepted, even after admission deadline.

Due diligence was bypassed when determining the existence of (artificial) bids from

companies that do not exist.

There were complaints (formal and informal) from nonwinning bidders.

Effectively managing this process when applying the basic tenet of agency theory to contract

management in the public sector, whereby the government (principal) contracts with the agent

(contractor) to perform a specified task, mixed with differing and conflicting objectives, various

levels of motivation and incentivization (or lack of), can give rise to a complex and

insurmountable situation. For example, a conference paper8 issued by the Project Management

Institute (July 2014) found that the U.S. Department of Defense (DoD) manages millions of

contract actions annually (obligated approximately $258 billion in contracts in 2013). However,

both the DoD Inspector General and the Government Accountability Office have issued multiple

reports on deficiencies in the DoD contract management processes, identifying poor contract

planning, contract administration, and contractor oversight as some of the critically deficient

areas in DoD contract management. Hence, to fully assess the underlying issues and develop a

road map for process improvement initiatives, regardless of project size or contract value, it is

necessary to explore and benchmark contract management maturity in the public sector.

4. Public Sector Contract Management Maturity It is important to recognize that the decision to contract and the contract monitoring and

implementation stages tend to receive less attention, although they are prone to corruption as

well (Kenny and Musatova, 2011). Therefore, the extent to which the level of maturity of contract

management achieved within the public sector can be assessed and its impact on the governance

framework is reliant on three critical factors.

The first is the process capability of government to achieve planned results. The second hinges

on the characteristics of the types of contracts executed by public bodies. These two factors are

interrelated when focused on effective contract management. Contract process maturity is

neither dependent on the tenure of service of staff nor the passage of time, but on the

8 Project Management Institute; see https://www.pmi.org/learning/library/

6

progression toward continuous improvement in process capability. As a government(s)

implements measures to gradually improve its process capability, organizational competence

increases, and organizational processes become more mature (Ahern, et al., 2001). Maturity can

be defined as “a measure of effectiveness in any specific process” (Dinsmore, 1999).

Similarly, competence is defined as the underlying characteristics of the contracts that will

eventually determine effective and measurable performance. The characteristics can be

categorized under two main contract types used by public entities. Neoclassical contracts

(Domberger, 1998) are short in duration (3–7 years), detailed, legally binding, limited in flexibility,

and specify performance provisions. Relational contracts are longer in duration (10–15 years),

have defined general purpose, omitted penalties, agreed control through cooperation,

encouraged sharing of benefits, and flexibility achieved by sharing information.

The third factor is not given sufficient attention by public entities and pertains to the level of

contract management maturity of contractors when delivering projects. Without a foundation

on which improvements can be built upon—and a framework for assessing the capability of the

contractor in delivering contractual objectives as specified by the other two critical factors—the

risk of fraud and mismanagement of public expenditures increases. A good reference point to

where it can all go wrong was encapsulated in the (previously mentioned) U.S. DoD conference

paper, whereby “the combination of the increasing defense contracting workload and the

decreasing size of the defense procurement workforce, along with the complexities of an arcane

and convoluted government contracting process and deficient contractor oversight, have created

the perfect storm—an environment in which complying with government contracting policies

and adopting contract management best practices has not always been feasible”. In December

2018, the Office of the U.S. Under Secretary of Defense for Acquisition and Sustainment issued a

report on defense and contracting fraud that encompassed 1,059 cases and resulted in criminal

convictions of 1,087 defendants. The Deputy Director for Public Sector Fraud of the U.K.

Government estimated that £31 billion to £49 billion of public sector money is lost to fraud each

year.

Following on from the example above, some of the red flags that procurement specialists may

consider as indicators to mitigate risks at the contract implementation and monitoring stage may

include:

Items not included in bid specifications are included in awarded contracts.

There are substantial changes to project costs and project scope after contract is awarded.

Audit certificates may be issued by unknown auditors with no professionally recognized

credentials.

The National Audit Office of the United Kingdom (NAO) indicated that better contract

management could derive savings and value for money; however, a lack of resources to manage

contracts and a shortage of qualified skilled personnel have been major contributing factors. CIPS

refers to an NAO study which found the central government spent an estimated £240 million in

2007–2008 managing service contracts. In its simplest form, the U.S. DoD conference paper

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identified the main areas along the contract management process areas where problems can be

identified and which, in conjunction with the use of a maturity model, can be used to “assess

organizational contract management process and provide a road map for implementing process

improvement initiatives” (Table 1). In this scenario, the contract management maturity model

(CMMM) assessment tool used was a web-based survey, and the problem areas were contract

administration and contract closeout process areas, procurement process integration issues, and

contract management training and knowledge sharing.

Table 1

Contract Management Processes

Source: (Rendon, R.G. 2014, U.S. Army)

Procurement Planning The process of identifying which organizational needs can be best met by procuring products or services outside the organization. This process involves determining whether to procure, how to procure, what to procure, how much to procure, and when to procure.

Solicitation Planning The process of preparing the documents needed to support the solicitation. This process involves documenting program requirements and identifying potential sources.

Solicitation The process of obtaining bids or proposals from prospective sellers on how organizational needs can be met.

Source Selection The process of receiving bids or proposals and applying evaluation criteria to select a contractor.

Contract Administration (problem area)

The process of ensuring that each contract party’s performance meets contractual requirements.

Contract Closeout (problem area)

The process of verifying that all administrative matters are concluded on a contract that is otherwise physically complete. This involves completing and settling the contract, including resolving any open items. Contract closeout also includes contract termination.

Ideally, public entities should strive to achieve a contract management maturity level that

enables continuous management process improvements with the use of performance indicators

that evaluate the quality, efficiency, and effectiveness of existing processes. Similar to project

management, programs should be established to capture lessons learned and benchmark against

best practices and quality standards. However, if government entities are able to achieve this

optimal state, there would still be an issue of managing differing or conflicting objectives with a

potential contractor of a different level of maturity. For example, a white paper on ”Contractor

Management Strategy” was issued by ISN Analytics and a five-stage contractor management

process maturity framework, together with the attributes of leading contractor organizations, as

per Figure 1, demonstrates that attributes which characterize leading contractor organizations

are, for the most part, very similar to those of an optimal state achieved in public entities.

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Figure 1

Five-Stage Contractor Management Process Maturity Framework

Source: (ISN Analytics, 2017)

5. Leading

3. Managing

2. Reactive

1. Start of Journey

4. Proactive

Attributes of Leading Contractor Organizations

1. Documented strategic plan.

2. Risks are well understood.

3. Risks of using third-party contractors are

well managed.

4. Leading metrics of performance are reported

to corporate level executives.

5. Communication regarding setting clear

expectations with contractors is the top area

for driving continual improvement in the

contractor management process.

6. Drive a safety-first culture.

7. They do not have a significant number of

disconnected internal business processes.

They integrate HSE, procurement, security,

and other internal processes for end-to-end

risk management practices.

8. Improvement of business continuity and

operational excellence is a key priority over

the next 12–18 months.

9. Regulatory requirements are the minimum

requirements to be satisfied.

10. Shortage of qualified contractor companies

and shortage of a skilled and competent

workforce are key challenges.

11. They do not see a lack of management

support and commitment as a key challenge.

12. They identify economic, political, and

regulatory uncertainties as challenges.

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5. Public Sector Contract Management Deficiency and the Risk of

Fraud Armed with the knowledge that poor contract management practices can lead to an array of legal

challenges, fraud, and loss of public trust, there still seems to be a great deal of confusion and

inertia by governments to effect change. Thus far, this white paper has provided numerous

situations that identified poor contract management practices that led to fraud and corruption;

however, many governments still do not prioritize this area of deficiency as a source of major

concern.

In the public sector, the risks of corruption are threefold at the contract implementation stage

(Ferwerda, Deleanu, Unger, 2016).9 First, changes to an awarded contract may be made and go

unnoticed because of failure by the procurement section to track records of its procurement

process. This allows public officials to request additional services over and above tender requests,

but this can also allow the chosen bidder to reduce the project scope. At this point, it is imperative

to investigate any changes in project scope compared to original design and any changes in

quoted prices to original quotations. Della Porta and Vannucci (2002) explained that

modifications of contracts and price alterations post-contract allocation are indicators of

corruption.10 Second, it is important to scrutinize audit assessments and compare these to

relevant media coverage. This is important as the monitoring entity can be corrupt or negligent

such that poor contractor performance is not recorded. Third, audit irregularities due to

suppliers’ poor performance should be classified as high risk. At this point, the supplier is assigned

the risk of corruption, as costs may be faked11 to recoup a bribe.

There is no way to measure the tangible benefits of good contract management, and this is

mainly because contract management is not well understood. It is still misconstrued that contract

management focuses on the terms and conditions of contracts and agreements. However,

contract management focuses on both value and risk arising from contracts. This is where

governments should become more adept at distinguishing, for example, the need for relational

versus neoclassical contract types, but this introduces the need for a complex skill set. There is a

lack of adequate planning at the pre-procurement stage which leads to chaotic decision-making

during the post-contract award phase. The NAO stated that contract management needs to be

improved, and there is a lack of skilled contract managers in the public sector, whereby, 64

percent of government agencies did not have a contracts management department; 45 percent

did not have the job title consisting of contracts management; and 65 percent were not

professionally qualified and trained in contracts management. In most governments, this skill set

is usually dispersed throughout various departments, and challenges arise with this disperse d

and diverse function that may not communicate and project-manage effectively. Therefore,

appropriating public monies toward a dedicated contract management function within

9 Jose Ferwerda, Ioana Deleanu, & Brigitte Unger, “Corruption in Public Procurement: Finding the Right Indicators,” 2016. 10 Laffont and Tirole (1990) argue that while renegotiation of contracts can be socially beneficial, malevolent public officials and companies can

abuse this provision for the purpose of rent collection (refer Note 9 above). 11 Phantom companies can provide best coverage for fake invoices, and, therefore, the real existence of the subcontracting firms and the other

team members, and their persistence in the market, is important (refer Note 9 above).

10

government is not prioritized; there is general lack of compliance and due diligence; lack or

nonexistent policies and procedures; and opportunities for fraud begin to manifest among

corrupt officials.

6. Effective Public Sector Contract Management This paper has discussed that fraud and corruption can occur at every process and at any stage

of the procure-to-pay process. Hence, managing the risk of fraud should not be viewed as

ancillary to developing a robust framework that includes managing performance, delivery, and

payment, and addressing the capability and competency of a contract management team. This is

a major failure by most public entities and also, to a certain degree, in the private sector. Many

public authorities become restrictive in managing contracts and contractors during the contract

term if a sound foundation of systematic and effective planning is not performed during the

procurement process.

It is important that after the drafting of project specifications, but during the tender

documentation and before determining appropriate award criteria, a robust performance

management plan is established. This performance management plan can then be included in

the contract and will be used for measuring and monitoring performance, so as to identify any

defaults to contractual obligations. Performance measurement in the form of indicators and

targets is now an integral part of government’s machinery when allocating funds and

demonstrating commitment to mandate to the public. An important point of note is that formal

introduction of performance targets was introduced by the New Public Management movement

in the 1980s, and, by 1999, the NAO concluded that performance targets of government agencies

were too outcome focused on impact to society, satisfying all different stakeholders and various

interest groups. This resulted in a large volume of targets being created, and resulted in

difficulties when executing and managing contracts. Also, additional targets had to be built into

contract clauses, with hidden costs that could be viewed as mismanagement of funds or could

lead to potential fraud. An oversight that many public entities experience is not considering any

potential amendments to a future contract at the point of pre-procurement.

Because this was not considered at an early stage of the process, there is usually an omission of

any inclusion of an express provision within the contract to address possible modifications. As a

result, situations like this can give rise to possible probity issues on public officers with fiduciary

responsibilities, approval authority, and vulnerability to fraud and/or corruption (Contract

Management Practice, World Bank, 2018). Probity involves more than just avoiding corrupt or

dishonest conduct, it involves ensuring that often complex public sector processes—such as

procurement—are conducted in a manner that is fair, impartial, accountable, and transparent,

and always in the public interest. Probity plans should factor a greater prominence in the

planning process.

Government agencies should conduct an internal analysis of the contracts management function

to determine its contracts management capacity. This capacity consists of the influence and

resources of managers to influence contract management issues, together with management

imperatives to develop and manage contracts successfully, when delivering public service (Brown

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and Potoski, 2003). Emphasis should be placed on recruiting experienced contract management

individuals and should be outsourced if not available within the public sector. These individuals

should be able to negotiate contracts, monitor and evaluate contractors’ performance, manage

budgets, and clarify performance targets (Figure 2). Requisite training should be conducted in

developing contract management individuals and pursue professional designations. A lack of

contract management competency is a key factor for losses experienced in contract management

when deriving value for money in public expenditures.

Figure 2

Contract Manager Responsibilities

Source: (Contract Management Practice, the World Bank, 2018)

The slowing down of the global economy over the past 10–12 years has placed a spotlight on the

use of public funds in the delivery of goods and services provided by government, and moreover,

ensuring that value for money is achieved. Traditionally, there was no distinction between

contract administration and contract management, and any value for money achieved during

tendering and negotiation was viewed as a procurement function. Today, there are many

government officials that still hold this view. Attaining an optimal level of contract management

maturity becomes difficult as contract management processes or standards that may be

established at a basic level are not institutionalized, and there is no government policy requiring

the consistent use of these contract management processes. Contract administration

professionals ensure government enters into legally sound, mutually advantageous contracts

that ensure value for money is achieved. This work is performed before contract formation and

Monitor and measure

output/outcomes.

Control payments for

successful delivery. Report to

governance

group.

Provide

relationship

management.

Prioritize risk

management.

Control changes

and contract

variations.

Organize

contract admin

and record

keeping.

Monitor

compliance with

contract terms.

Analyze reporting.

CONTRACT

MANAGER

12

involves sourcing potential contracting partners via requests for proposals and working with

prospective partners to finalize price, schedule, and performance expectations. Contract

management occurs after contract formation and requires appropriate utilization of government

resources. This involves compliance with contractual obligations, managing relationships, and

facilitating modifications to the contract.

It is imperative that procurement, contract administrators, and contract managers remain in

close communication throughout the life of the contract, as during the pre-procurement planning

process all parties should have been involved. A strategic procurement approach facilitates a

“cradle-to-grave” approach utilized in the private sector as a combined function called

procurement and contracts management. When dealing with PPPs and PFIs, this approach is

critical to identifying fraud. For example, these arrangements are large projects that usually

require a new company to be formed to facilitate a PPP/PFI agreement. This company is

established, there are no controls in place, and there is a high level of disorganization. This can

create an environment for potential fraud to become embedded in the design phase. However,

with a public entity that already has established contract management processes that are fully

integrated with other organizational core processes such as financial management, schedule

management, performance management, and systems engineering, the entity can use metrics

to measure various aspects of the contract management process and to make contracts-related

decisions. This planning requires skill sets from all three—procurement, contracts administration,

and management. Therefore, reducing fraud would involve reviewing fraud strategies and

policies, risk registers, and fraud investigation log. Procurement fraud controls should also be

enforced by auditing contractors and subcontractors, implementing an efficient procure-to-pay

process, and introducing fraud training during the planning stage.

7. Conclusion As a means to improving the contract management function in the public sector, with the primary

purpose to reduce instances of fraud and corruption, a more modern and progressive

interpretation should be considered. Contract management is a subset of the procurement life

cycle, and this life cycle is a hotspot for fraudulent activities because it is one of the primary areas

of expenditure for government organizations. This area is very difficult to investigate because

governments do not view contract management as an investment but rather a cost, especially

when building mechanisms to prevent fraud and achieve value for money. In addition, state-

centric anti-corruption organizations have failed to make any appreciable changes in the fight

against corruption of this nature, due to the paucity of evidence in corruption cases and a lack of

capacity for tracing financial crimes—more-so in developing countries.

A major setback with most governments is the inability to complete a long-term strategy within

the time frame that representatives are in elected office. Hence, any loss of control due to the

introduction of new elected players can result in a breakdown of any relationship management

that was nurtured in the not-too-distant past, which can jeopardize successful completion of

earmarked projects. In developing countries, procurement corruption is exacerbated due to

institutional weaknesses, bureaucratic-decision making, a lack of enforced accountability

13

mechanisms (law enforcement), and a culture of silence in relation to public sector

malfeasance.12

In summary, most instances of fraud committed during the contract management phase could

be prevented or detected early if the government entity possesses a complete understanding,

with a view to institutionalizing, the following:

Policies, procedures, and controls embedded within the procurement framework. This would

be the first line of defense and is foundational to any successful compliance program,

especially in detecting risks and outlining how the government organization is fulfilling its

regulatory requirements.

There should be list of red flags and typologies for corruption along the procurement cycle

that government officers in both procurement and contract management should be aware of

and continually trained on.

Data analytics should be considered in detecting insider-enabled contract management

fraud. Analytical techniques can measure areas that have an increased chance of corruption

and can assist law enforcement by focusing on targeted investigations.

Contract management should not be viewed from a purely legalistic manner, and as such,

governments should consider more usage of relational type contracts. This would enable

strategic alliances and allow for more cooperation, especially given that the majority of

modern contracts are subject to volatility in technology, prices, and competition.

When conducting strategic planning exercises, public sector organizations should introduce

objectives that target savings and an approach for generating value for money. This would

entail contractors becoming motivated, enabled, and empowered to achieve extra value over

and above original specifications, but still accessible against the original contract criteria.

Long-term contracts should include accrued benefits to contractors via incentivization for

achieving savings and developing innovation. This would cause contractor and government

objectives to become more aligned, share common interests, minimize the desire for fraud

or misappropriation of funds, and work towards the broader social and economic objectives

Contract management is an important part of the procurement process, but one that receives

the least focus and attention in the legislative framework on procurement. This paper is not a

panacea to all the ills of corruption in contract management but, rather, demonstrates how

effective contract management practices can lay the foundation for detecting and reducing the

risk of fraud in public expenditures.

12 Journal of Public Procurement, 2018, “Systemic corruption and public procurement in developing countries: Are there any solutions?”

14

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