I’ve been watching the headlines on Spend Matters and Spend Matters UK the last few weeks where they have been harping on the 820K GSA Conference in Las Vegas (and the fact that the GSA cited their maximum budget in advance with no intention of negotiating lower rates) and the lack of spending ethics in an organization charged with helping the Government save money. While this is an example of “excessive and wasteful” Procurement practice that is likely in violation of the policies of just about any Public Sector agency, it’s more of a personnel issue (with a few bad apples who like to misuse funds) than a Procurement issue.
This story, which broke in early, should be dwarfed by a much more important story that broke around the same time, that dealt with an amount 2,800 times as large. And that is, as first reported on SupplyManagement.com (to the best of the doctor‘s knowledge), the result of the 2012 Annual Fraud Indicator, as published by the National Fraud Authority.
According to the report, Procurement fraud, which made up the largest portion of the total loss, cost central government £1.4 Billion and local government £890 Million as a result of false and ‘double invoicing’, price fixing, altering payment details, and giving kickbacks to determine contract awards. Note that the first and last instances of fraud can only occur when someone on the Procurement team is taking part in the fraud. (And don’t tell me the buyer didn’t double invoice. While true, if he didn’t catch it, he’s guilty. It doesn’t take much work to check an invoice, and if you acquire a good P2P system, invoices are checked automatically against invoices in the system, rejected if obviously duplicate [same invoice #, etc.] and flagged if potentially duplicate [similar details, amounts, etc.].) If a large number of false or double-invoices slip through, then someone on the team is letting them. (Unless they are really, really stupid. But, hopefully, by now such people would have been eliminated from such a significant role given the focus on Procurement in the last decade.)
Think about that for a moment. £2.3 Billion or $3.7 Billion U.S. That’s an amount greater than the economy of at least 30 countries (Tuvalu, Kiribati, Sao Tome, Tonga, Dominica, Comoros, Samoa, Saint Vincent, Saint Kitts and Nevis, Vanuatu, Grenada, Solomon Islands, Guinea-Bissau, Gambia, Seychelles, Liberia, Antigua and Barbuda, Saint Lucia, Djibouti, Belize, Bhutan, Cape Verde, Maldives, Central African Republic, Sierra Leone, Burundi, Lesotho, Guyana, Eritrea, Fiji, Togo, and Suriname)! Gone. In the crapper. Down the drain. From fraud! So, Martha Johnson may have had her fun, while single-handedly propping up the economy of Las Vegas for a few days while doing so, but this wasteful spending (on real goods and services, though very heavily inflated in cost) was only a drop in the bucket compared to the money lost in public sector fraud every year.
The message — if you are a public sector organization, get an audit and do something about the fraud. If you don’t know where to start, get help. There are consultancies that specialize in this. Katzscan is one example.