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US Government Takes Down Procurement Fraudster

This story from the Homeland Security Today website dates from a couple of months ago, but it is an interesting procurement fraud case, as it does not involve any internal participants – it is a purely supplier-based fraud. Whilst that is certainly far from unique, it is probably not as common as those driven by internal staff or through collusion between internal and external players.

In this case, Cory Collin Fitzgerald Sanders, age 39, of Hagerstown, Maryland, was sentenced to 45 months in federal prison, followed by three years of supervised release, for wire fraud, false claims, and making and using a false document in connection with his companies’ performance on federal contracts. He also had to pay around $200,000 in fines and restitution.

The offences related to his two telecoms firms between 2015 and 2020.  The charges were pretty wide ranging but generally related to contracts with federal agencies that required his firms, Sandtech or Cycorp Technologies, to provide new telecommunications equipment which was still under manufacturers’ warranty. 

He contracted to supply new equipment, but then actually provided second hand, or non-warranted equipment instead. He claimed to have accreditation from the OEMs (original manufacturers) that would protect his customers when in fact he didn’t. He also was not authorized to provide certain IT services to the federal government, but represented to government officials that he was. It sounds like he invoiced in a fraudulent manner too, getting the agencies to pay for “deficient or non-existent performance”.

“Mr. Sanders deserves to be held fully accountable for his actions to defraud the U.S. Government by routinely providing telecommunications equipment that did not meet contract specifications and submitting false documentation in an attempt to cover up his scheme,” said Special Agent in Charge Greg Gross. 

The US government does seem pretty hot on prosecuting dodgy suppliers, more so than I’ve seen generally in the UK, for instance. In this case, a prison sentence of 45 months again feels more severe than “white collar criminals” tend to get in the UK. That’s a good disincentive for others who might be tempted to commit fraud, of course.

So what can procurement people and others do to protect their organisations against this sort of fraud? There are a few potential risk mitigation steps.  Firstly, checking out the credentials of any new supplier (and their directors) is important. And take up references wherever possible. Maybe that would not have stopped Sanders – but it certainly makes it harder to create new firms for fraudulent purposes.

Another obvious point is that goods delivered, whatever they are, should be checked to make sure they align with what was contracted for. And don’t assume that any accreditations and certifications are genuine – documents and emails can be forged. It is better to go back to the source if you can  – you could go back down the supply chain and check with the OEM that a distributor really is properly accredited, for instance.

So the usual safeguards against procurement fraud come into play again – and you can get the full list of mitigating actions and plenty of good advice on avoiding fraud and corruption in the Bad Buying book of course!

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Bad Buying in Birmingham?

Increasing numbers of local authorities (county, city and town councils) in the UK are facing financial crisis. The latest is Birmingham, England’s second largest city, which has issued a Section 114 notice – in effect declaring itself bankrupt. Commissioners will be sent in from central government to take over the running of the authority.

The core reason is an equal pay claim going back years. Women employed by the council weren’t paid as much as men doing similar jobs. But it seemed for some years that financial provisions had been made to pay those affected and all was well. But there appear to be more claims now, which suggests the original problems weren’t sorted out when they should have been. There should have been a serious job evaluation programme but somehow that hasn’t happened. Infighting amongst the ruling Labour Party has not helped either, some observers claim.

However, there also seem to be other reasons for the crisis. Birmingham spent over £100 million hosting the Commonwealth Games last year – good for motivating the locals perhaps, and maybe it brought cash into the city, but a lot of many to spend when you’re in a bad financial position.

Now we are moving into “bad buying” territory too, with  accusations of money being wasted in the procurement area. A report in the Daily Mail says, “calls for police probe into bankrupt Birmingham Council’s £11M payments to tiny taxi firm charging £200 a day to take one pupil to school”.  This firm, Green Destinations Ltd, (GDL) has grown rapidly in recent years to become the main beneficiary of  school transport contracts, and there is a suggestion that it might have been “close” in some way to executives who had influence on the contracts.

Now we have to be careful with headline reports. £200 a day might be for a special educational needs pupil who needed accompanying in the taxi and so on. But competitors also claimed that council officials told their drivers they might be better off working for the favoured firm in question. And the table of fares quoted by the Mail does seem to show very high fees compared to standard taxi rates. No doubt more will emerge on this.

However, there hasn’t been any suggestion that procurement in Birmingham is generally useless or corrupt. But I did feature the authority a couple of times in my Bad Buying book. The first was a call-centre contract with Capita, which an enquiry into the service pointed out did not incentivise Capita very sensibly. They were paid on a per call basis, so had no incentive to sort out problems first time or take the required time to do that.  (However, it was the council itself that wasn’t very good at sorting out the underlying problems, to be fair to Capita).

The other mention in the book was the disastrous road maintenance contract with Amey, which ended up with the firm paying £215 million to get out of a 25-year PFI deal. The relationship between the two parties had broken down completely, with a famous report that the council tried to charge Amey penalties of £48.5 million because the firm didn’t repair two bollards quickly enough. All of that was not necessarily the council’s fault, but you have to wonder why you would get into a 25 year contract for any service really. (Maybe it would have some logic for a large construction PFI, but not for roads maintenance). Put those two together and you might perhaps draw conclusions about naivety and a lack of commercial nous in Birmingham.

Anyway, the city may now need to sell art galleries, housing and land to try and balance the budgets, which is very sad for what is a great city. Of course, the national Conservative government is loving this, claiming it is an example of “Labour failure”. But in fact, it is just the latest in a long line of local government waste, corruption, bad buying and financial problems, a line that runs through Liverpool, Northamptonshire, Somerset, Thurrock, Slough, Surrey Heath, Woking, Croydon and more – both Tory and Labour authorities.  Reduced funding from central government is one reason; but there are also too many incompetent or corrupt people in our local government system, it seems.

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Yet Again, a “Sophisticated” Fraud Hits the NHS

The UK’s National Health Service has for years been a “good” source of Bad Buying fraud and corruption stories.  There are several reasons for that. Firstly, it is huge organisation, employing some 1.3 million people. Secondly, it actually has a pretty good counter-fraud unit, and when fraudsters are discovered, they are often prosecuted, so the news becomes public domain, whereas private sector firms often hush up embarrassing cases. But it has to be said – the cases I’ve seen over the years often also suggest that too many NHS organisations have very weak policies and processes around procurement and payments.

The latest case reported in the media recently saw Thomas Elrick, 56, jailed for 3 years and 8 months.  He was assistant managing director for planned and unscheduled care at Harrow Clinical Commissioning Group (CCG) where he had the authority to approve invoices up to £50,000. That organisation is a purchaser rather than a direct provider of healthcare – so it buys services from providers on behalf of the local citizens. 

Elrick created a company, Tree of Andre Therapy Services Limited, using the name of his husband (who knew nothing about it) as the owner, and invoiced the Trust for services that were never provided. Between August 2018 and December 2020 he authorised payments totalling £564,484. To cover his tracks, he also sent an email from the account of his dead wife which claimed to show details of patients the firm had “treated”.

Elrick spent over £100,000 on holidays to Dubai, Hong Kong, the Maldives, Singapore and Switzerland, and also spent just under half a million on shopping, with Amazon, Apple and David Lloyd gyms. But eventually a smart colleague decided to look up the Care Quality Commission accreditation for this firm and found of course that it did not have one, and then the connection to Elrick was found.

There is an interesting angle here in terms of his response. In a statement after he was sentenced, Elrick said “I wish I could turn back the clock but I know that I cannot and I sincerely apologise…  I am not a bad person. I believe that I am fundamentally a good person who made bad decisions, for which I take sole responsibility.” 

Self-delusion is an amazing thing, isn’t it?  I stole half a million from the NHS but I am “fundamentally a good person”.  The mind of a fraudster is often interesting, I suspect.   

But we have to ask how on earth this fraud was possible?  In my Bad Buying book, I give seven key anti-fraud precautions every organisation should follow and this case study and organisation broke several of them. There was no check on the onboarding of a substantial new supplier, which had no trading record, no CCG listing and a conflict of interest in the ownership (although that might not have been easily spotted). There was no check apparently that services paid for were actually received; and of course most fundamentally one person could conduct the whole pseudo-procurement process and authorise payment of large invoices without anyone else being involved or approving the spend. “Separation of duties” and all that.

This was not a sophisticated fraud. It was enabled by an incredibly weak process that was wide open for exploitation by anyone with a modicum of intelligence (and a lack of morals).  Personally, I would fire the CFO and the Procurement Director at the Trust for allowing this money to be stolen so easily.  But this is the case in so many organisations and so often – basic precautions against fraud are simply not put in place. Is it ignorance, laziness, or maybe a management team that wants to leave the door open just in case they want to do something dodgy themselves? Who knows.

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Support to Disadvantaged Suppliers Attracts Fraudsters

Programmes to support minority owned businesses, smaller firms, social enterprises and the like via public sector procurement have become increasingly popular over recent years in many countries. The Social Value Act in the UK in 2012 made this sort of action more prevalent in the UK, but the USA is probably where such schemes are longest established.

However, the irony is that the more successful such programmes are in terms of actually directing spend towards such suppliers, the greater the temptation for fraud and corruption to spring up. Genuine firms that need support might lose out to unscrupulous criminals and conmen/women.

One mechanism for that is basically using what we might call “non-value for money” evaluation criteria to award contracts to a supplier that doesn’t really deserve them. That can lead to distortion in the selection of winning bidders. “This firm’s bid wasn’t the cheapest but they are a small firm / owned by a women / promise to employ lots of disabled local people. That gave them lots of marks for “social value” in the bid evaluation”.  What isn’t made public is that the firm is also owned by the budget holder or decision maker’s sister-in-law.

The other quite common fraud is where a firm is apparently owned by a person or people who qualify as a “minority” but in fact, control rests with non-minority owners. We have seen that a lot in the USA and also in countries such as South Africa which have had schemes to give preference to black-owned businesses in public procurement.  I gave several examples of this in the Bad Buying book from both of those countries.

But this is still going on – a recent report in the Chicago Tribune highlighted a current case. It is not clear yet which of those two mechanisms is suspected here; is it disguised ownership or the use of minority programmes to favour a firm for improper reasons?  But federal prosecutors are “investigating possible minority-contracting fraud involving a series of Chicago government contracts worth hundreds of millions of dollars, including many with ties to a clout-heavy trucking and recycling company owner, according to sources and documents obtained by the Tribune”.

James Bracken and his wide Kelly own several companies engaged in construction, waste management and transportation. Investigators have asked city agencies for copies of bid documents and more relating to several contracts and for information relating to the city’s women and minority owned “set aside” programmes.

The programmes started in 1990 with the aim of awarding at least 25% of the total value of all city contracts to minority businesses and 5% to women-owned operations. But there have been accusations of fraud from the beginning. Company owners, chasing multimillion-dollar contracts, have put up phony “frontpeople” to get certified as minority or women-owned. Another route is to claim that a high percentage of work will got to minority subcontractors. In my experience, that is the sort of claim that rarely gets checked once a contract is operational!

A lot of this comes down to procurement carrying out the appropriate due diligence and checking out firms at the bidding stage, managing contracts well once they are operational, and of course keeping an eye out for conflicts of interest and other potential drivers of corruption. It is a constant battle between the forces of good (procurement, usually) and evil (certain dodgy potential suppliers and general low-life scum!)

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Disqualifying Suppliers from Government Contracts

It feels like the new UK Procurement Bill has been moving through Parliament for years – it is only a year in fact, although before that there was an extended period of consultation.

One of the themes of the Bill is that it should be easier for the contracting authority (CA) to “bar” or disqualify suppliers from bidding altogether. That has been possible for many years if the supplier or one of its directors had committed certain criminal acts, but the new legislation includes exclusion for poor performance for the first time.  There is also exclusion for “improper behaviour” which has led to a supplier gaining an unfair advantage in the competitive process.

However, the authority will also have some flexibility. The new rules mean that the existence of a mandatory or discretionary exclusion ground is not enough in itself to throw the bidder out of the process.  The CA has to first decide if the circumstances giving rise to the exclusion are likely to happen again. That’s quite a difficult and potentially controversial assessment to ask the buyer to make, in my view. There is also going to be a centrally-managed list of firms that have been barred.

It will be interesting to see whether there will really be any significant change of behaviour in this area. In truth, CAs are very cautious about barring firms, fearing I suspect legal challenge and endless argument getting in the way of running the actual procurement process. I’m not sure that will change.

An interesting example of this unwillingness was reported recently on the Nation Cymru website. Campaigners have accused a National Health Service Trust of ignoring anti-fraud regulations by allowing two firms that have been convicted of bid-rigging to form part of a consortium to build a new cancer centre in South Wales. The Acorn Consortium is the preferred bidder for constructing the new Velindre Hospital in Cardiff. That project has faced strong opposition on environmental and medical grounds, and it is those against the construction who have raised this issue.

Nation Cymru has described how two of the consortium members – the Kajima group and Sacyr – have been found guilty of fraud offences in Japan and Spain respectively. As the website reported,

“Kajima was sentenced for bid-rigging in March 2021, with one of its executives receiving a suspended prison sentence and the company itself being fined 250 million yen (around £1.53m) for its role in the scandal, which involved a number of firms colluding with each other on the construction of a railway line to maximise their profits. Sacyr received a penalty of €16.7m in July 2022 for its part in creating a cartel aimed at aligning bids for government contracts”.

When asked why this had not led to exclusion, a Velindre University NHS Trust spokesperson responded: “The robust procurement process has been undertaken in line with procurement law, UK and Welsh government policy and all required due diligence has been undertaken.” 

I’m not sure that’s a good enough explanation really. When the spokesperson was asked to explain in more detail why “regulation 57” (which covers this sort of thing) did not apply or was over-ruled here,  they “did not offer an explanation”.  I do think they should say more.

But conceptually it’s a tricky one. With my buyer’s hat on, do I really want to kick out what presumably is my best bidder because two possibly quite minor consortium members did something bad hundreds or thousands of miles away? On the other hand, we do have regulations for a purpose. 

In terms of the justification, having had a quick read of “regulation 57” (it’s some time since I studied “the regs”), I suspect the answer lies in the famous “self-cleaning” clause. That says, “Any economic operator that is in one of the situations referred to in paragraph (1) or (8) may provide evidence to the effect that measures taken by the economic operator are sufficient to demonstrate its reliability despite the existence of a relevant ground for exclusion”.

So basically, if a supplier can show that it has taken lots of steps to make sure it will never, ever get involved in bid-rigging again, or any of the other reasons for mandatory OR discretionary exclusion, and the buyer is naïve enough – sorry, I mean if the buyer analyses those declarations and decides they are valid, then the supplier is back in the game.

You can see the logic in this, but it is a bit of a “get out of jail” card really. It’s also another reason why in practice, we so rarely see suppliers barred. It will be interesting to see whether anything changes once the new Bill has been implemented – but I have my doubts. Barring is potentially just so fraught with hassle and risk.

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An Interesting Fraud – – Maybe Bad Supplying Rather then Bad Buying?

There are a number of very common procurement frauds; well covered of course in the Bad Buying book.  “Inside jobs” based around a corrupt employee take a number of forms but often consist of someone internal diverting spend to fake companies that they control or have a stake in, or to companies that are paying them a bribe. Fraud from outsiders often means submission of fake invoices, or diverting invoice payments away from genuine suppliers to the fraudster.  However, most frauds could be prevented by some sensible and standard policies and processes.   

So having collected examples of fraud and corruption in a fairly serious manner for over a decade now, it is rare for me to see a new variant. But a recent case in the US was quite unusual, in that it was based on buyer impersonation, which we don’t see very often. I’m sure it has happened before, but this was certainly not a common or garden case. Indeed, it was quite impressive in a way, with the fraudster showing impressive attention to detail, and a good understanding of how procurement works. And the failing was not actually with procurement policy or people; it was the suppliers who were conned and whose processes let them down.

Fatade Idowu Olamilekan,  a citizen of Nigeria, was extradited from Nigeria to the US (with good cooperation between the authorities in each county) and recently sentenced to five years in prison in the US in connection with a scheme to fraudulently obtain and attempt to obtain millions of dollars.

From 2018 to 2020 he obtained details of various procurement executives in the US government sector. In particular, during the pandemic, he impersonated the Chief Procurement Officer of New York State to fraudulently obtain medical equipment, including defibrillators.  He set up email addresses that were as close as possible to the correct ones for the relevant people and organisations. He then contacted suppliers, principally those already working with New York, and said he was looking for quotes for items.

After they submitted quotes, he told the suppliers that they had been successful and won the contract, and issued them with fake purchase orders (POs). The goods were to be delivered to warehouses that he nominated, and from there he shipped them to locations in the UK, Australia and Nigeria.  The payment terms on the POs was 30 days, which is pretty standard, so didn’t raise any alarms. But of course that gave him 30 days to move the goods somewhere else once they were delivered, before the supplier started looking for their money. Presumably, when their cash didn’t arrive, the supplying firm eventually got through to the real buyer, who would then explain that they knew nothing about this order.

All very clever, although getting goods rather than direct cash via a fraud leaves you with the problem of disposing of the stolen goods. Criminals rarely get anything like the real value of their ill-gotten gains (so the bloke in the pub trying to flog me a laptop said).  So that’s a downside of this type of activity. 

Whilst this wasn’t really a very hi-tech fraud, it does raise some interesting questions as we move into the AI world.  A single phone call from the supplier and conversation with a real procurement manager from New York would have put an end to this within minutes.  So as transactions and even sourcing processes become more and more automated, you can imagine a situation where a clever fraudster uses a fake AI bot to place orders, which will then be processed by the suppliers’ AI powered bots. How long would it be before the supplier bot realises it has been conned?

This is not something I’ve thought about too much, but as we enter the ChatGPT era, there’s going to be a whole new world of Bad Buying fraud and corruption to think about and look out for!

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Local Government Elections – Can We Stop Corruption and Incompetence?

We have local council elections in England on Thursday this week (May 4th). According to the opinion polls, the Conservatives may lose one thousand seats to Labour and (in areas like Surrey where we live), the Lib Dems.  Of course, as a mere procurement author and commentator, I wouldn’t dream of suggesting how you should vote. I mean, if you think we have seen growing prosperity in recent years, improving public services, clear rivers and lakes, a great train service, a ruling cadre that deeply cares about the people… you should vote accordingly.

Personally, I would like to see more councils where there is no single party in control, or at least where the control does and can change over the years. Where the same party rules for decades on end, complacency can set in, or elected councillors can even start behaving in an unethical or criminal manner.

We’ve seen some extreme cases of this in recent years. It is not just one political party behind these disasters either – it was Labour led councils that failed in places including Slough, Liverpool and Croydon, and the Tories in Thurrock, Woking and Northamptonshire. But they have all presided over financial disasters, with gross incompetence always a factor and accompanying fraud in some cases. 

Certainly one common thread is the secrecy, lack of openness and transparency that we see in the behaviour of the councils. My own local council, Surrey Heath, is not quite a disaster on the scale of some of these others, but the Tory council made an extremely misjudged investment in commercial property in Camberley town centre, buying right at the peak of the market. In terms of asset value, that has cost the local taxpayer over £50 million and counting. But the deals were stitched up by a very small cabal of councillors and executives – not even all the Tories in council knew what was going on. Hopefully, the Lib Dems will win here this week, then at least we might get to see the full accounts and the full story behind what went on.

In the case of Thurrock, it was brilliant work by journalist Gareth Davies that exposed the huge and very “strange” investments that may end up costing the taxpayer £500 million in real cash losses. Again, there was no transparency and councillors refused to disclose information for year, even after Freedom of Information requests. (I will be astonished if no-one ends up in court over this case).

Many of the cases involve “bad buying” in a conventional procurement sense too. That was certainly true in Croydon, where construction and refurbishment contracts were part of the story – that is another case where we don’t know yet if the driver was fraud, incompetence or both.  In other examples, it is dodgy investments (which is “buying” of a sort, I suppose), and we also see ridiculously extravagant payoffs to top executives too.

At the end of 2022, Labour published their plan for greater devolution of power. If Labour win the next election, the government will devolve more budget and control to local councils and mayors. I’m all for that in theory, but given what we have seen in the last few years, it also makes me nervous.  If Keir Starmer really wants to do that, he must put in place some checks and balances to make sure we don’t just see more Croydons and Thurrocks, but with even bigger sums of money.

Transparency needs to be addressed, public scrutiny should be made easier, and there should be a strengthened audit regime for councils. But the problem with audit is it is after the event when the money is already gone! So maybe there should be some sort of pre-expenditure check for projects, investments or contracts over a certain amount?  Perhaps a reincarnated Audit Commission could fulfil that role? Anyway, just throwing more money and power at some of the incompetent and /or crooked muppets we have seen around local government in recent years does not seem sensible.

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Remember the Procurement Basics!

Not a Wetherspoons to be honest – the picture shows my favourite pub in the world, the Strugglers Inn in Lincoln

No matter how much we like to talk about sustainability, complex strategies and supplier relationship management, procurement has some basic elements that cannot and must not be forgotten.  A couple of recent cases act as a good reminder of that.

The first is a dispute between Wetherspoons, the leading UK pub chain with 843 branches, and AB InBev, the world’s largest brewer (they produce Budweiser, Beck’s, Stella, and also some beers that aren’t tasteless).  In November 2021, Wetherspoons agreed to make AB InBev their lead brewer (“preferred supplier”) of mass-market lager, replacing Heineken. ‘Spoons, as it is affectionately known, sells a good range of real ales and interesting cask beers but still offers the standard products too for the less discerning drinker.

But the dispute relates to disagreement over who is going to pay to install the T-bars (the branded fittings that include the keg beer taps) in all the Wetherspoons pubs. The argument has gone to the UK high court now, to decide which company should be responsible for carrying out the works needed to fulfil a contractual requirement for pubs to display a set number of AB InBev beers on their T-bars. Wetherspoon claims that both parties believed the brewer was responsible, in line with standard industry practice. AB InBev denies this, saying the work should be subject to a sperate agreement.   

For two such large and apparently professional firms to be arguing over this seems incredible really. Presumably there is a formal contract between them, and surely that would include a clear allocation of responsibility for costs associated with the change.  If that was not included in the contract, then that represents both Bad Buying and Bad Selling, I would argue.

So the first of today’s two key learning points is this. A contract must detail the responsibilities that each party is expected to meet in order to uphold the legal agreement.  Now in very large or complex contracts, there might be some minor details that don’t get captured up front, but in particular, any activities that have an associated cost must be clearly laid out. Otherwise, there is a high probability of arguments later, as Wetherspoons and AB InBev have discovered.  I know this seems obvious, and yet there they are, in the high court.

The second case is both serious and quite amusing. Metal traders at Stratton Metals sold 24 tonnes of nickel to a German customer recently. Nickel is a valuable metal, increasingly used in batteries for electric cars, so much in demand. It is sold as briquettes, packed into 2-Tonne sacks. But when the customer took delivery and opened the sacks, they discovered that half contained worthless stones rather than nickel!

This was highly embarrassing for the London Metal Exchange (LME), which facilitated the contract and is Europe’s only remaining “open outcry” trading floor – rather than sitting in front of computer screens, traders literally shout at each other to arrive at buying and selling prices. The LME also operates through a network of 464 warehouses around the world which hold metals in stock, although LME does not own or manage these facilities. The dubious sacks were in a Rotterdam warehouse.    

Nickel seems to be a bit of a favourite for dodgy dealings at the moment. Last month, Trafigura, the Singapore-based commodities firm, took a hit of $577 million to its accounts when it discovered a huge fraud involving missing cargoes of nickel – although it is not clear that is linked to this recent stones substitution.  Trafigura is taking court action against Prateek Gupta, an Indian metals tycoon, over the missing metal.

Anyway, we might draw two wider procurement lessons from this. The first is very simple. Always check that you have been supplied with what you have paid for. Actually, that is not too difficult when it comes to physical metals – it is considerably more difficult when it comes to complex services, for instance. But the principle and the risk for the buyer is the same. You said you would provide this, I contracted to pay on that basis, and you have delivered something else.

Secondly, the nickel case shows that trust is still an important part of doing business. Despite the comments above about the importance of a robust contract, even a good example will not always protect you against corrupt, criminal or fraudulent behaviour. Trust does matter; so if you have a supplier you can trust, remember that is worth quite a lot. Nobody wants to find stones instead of nickel in their warehouse, literally or metaphorically.

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Barcelona In Trouble – Why “Appearance” Matters When It Comes To Behaviour

In all the controversy over Gary Lineker, I missed another football-related story last week when it first broke. Barcelona, the legendary Spanish football club, are in trouble.  Following a tax investigation into Jose Maria Enriquez Negreira – a former vice-president of Spain’s referees’ committee – and a company he owns, it turns out Barca paid 8.4 m euros (£7.4 million) between 2001 and 2018 to Negreira and his firm.

That half a million a year was supposedly for consulting services. The explanation is that Negreira was advising Barcelona on how their players should behave around different referees. Barcelona say that his firm, Dasnil 95, which it described as “an external technical consultant”, was engaged to compile video reports related to professional referees “with the aim of complementing the information required by the coaching staff”. It added that contracting the reports was “a habitual practice among professional clubs”.

Well, we haven’t seen too many other clubs as yet admitting that they did follow the same practice, so Barca may well be in trouble.  And even if that was as far as it went, it doesn’t look good, as the club was trying to gain what most would consider to be an unfair advantage. But of course there is speculation that the payments were even more “corrupt” than that, being made with the intent to buy favourable treatment from referees for the club.  It doesn’t help that the contracts with Dasnil 95 were verbal and the lack of formal records suggests the parties were not keen on transparency!

As the BBC reported, a Barcelona court heard “that Barca, former club officials and Negreira had been indicted for “corruption”, “breach of trust” and “false business records”. These lawsuits, brought by the Barcelona public prosecutor’s office, target the club, as well as former presidents Josep Maria Bartomeu and Sandro Rosell”.

Whatever the outcome of this case, it highlights an important point that is highly relevant to all of us when it comes to corruption and inappropriate corporate behaviour. It is not just the direct intent behind the action that matters; how it looks and is perceived by others is also important.

I may be absolutely certain that my decision making about a current procurement decision is fair and unbiased. I can swear on my life that I have no preference as to which of the short-listed bidders win. But if colleagues see me having dinner at the £250-quid-a-head Fat Duck with the sales director of one of those firms … maybe we were discussing matters totally unrelated to the current competition, but how does it look? It looks bad, and that is Barcelona’s problem here. Their actions look really, really bad.

I checked on the Chartered Institute of Procurement and Supply’s Code of Conduct, and was pleased to see this. Members should; “ Avoid any private or professional activity that would create a conflict of interest or the appearance of impropriety…”

The key word there is “appearance.”  Just telling me that of course you are honest and decent is not enough; if something would not look right, then don’t do it.  

But of course, there are difficult and grey areas. I have in my dim and distant past accepted corporate hospitality from some suppliers. I justified it as – for instance – an opportunity to meet a supplier’s CEO, who I might not get to see in the normal course of business as a medium-sized customer. I played in a Virgin Airlines golf day once when I was trying to use Virgin as a lever to get a better deal from BA, who did not want to negotiate.  I wanted to speak to Richard Branson directly and thought the golf was my best chance.  However, he seemed much more interested in talking to his lovely stewardesses who were there as hosts, rather than mingling with the customers, and I played really badly too. Served me right…

Some organisations have imposed very tight ethical rules in terms of behaviour with suppliers, which is admirable but maybe can go too far at times. I do think that if I’m visiting a supplier’s factory or offices, and they offer me lunch in their cafeteria or a sandwich at the local pub, I’m not going to get hung up on who pays for that.

I remember visiting a packaging factory in Belgium (the trip paid for by my own employer) and being given a little ashtray as a thanks for coming so far to see the firm. It featured a picture of the factory, and was made by the local pottery, so it would have seemed silly and ungrateful to refuse it, even though I have never smoked a single cigarette in my life. It raised 50p at the charity shop later… But at least those policies that are absolutely crystal clear about hospitality, gifts and so on have the benefit that no transgressor can claim they didn’t understand the rules.

Anyway, I think Barcelona are in trouble here unless they can show that paying for that sort of service really is commonplace amongst other clubs.  And in our own lives, it is worth remembering that if it looks wrong, sounds wrong, or feels wrong… then it almost certainly is wrong.

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Spotting the Dodgy Bidder

After a couple of weeks featuring the travails of the Chartered Institute of Procurement and Supply, let us return to the day-to-day world of Bad Buying.

Looking through a list of recent procurement-related frauds, there were the usual “fake invoice” incidents, still probably the most common way to extract money from an organisation. In most cases, it is an insider driving that, setting up fake companies and signing off payments themselves, but sometimes there may be external help too.

But then I spotted an interesting example of a type of fraud that is rarely reported. It involves a firm (or individual) submitting false information to a buyer and winning a contract on the basis of that information.  Now we might ask whether it is unusual to see this because it rarely happens – or because the perpetrators just don’t get caught!

In this case, Raymond White (who has used several other names during his long and not particularly illustrious criminal career) defrauded the US government by “submitting fraudulent documents and false information about himself, his company’s business, and his company’s finances in order to obtain a $4.8 million contract to build a munitions load crew training facility at Joint Base Andrews, Maryland”.

He also obtained a bond guarantee from the United States Small Business Administration in connection with the same contract, and just for good measure, he committed identity theft by using another person’s signature and Social Security number (presumably to avoid using his own name, as he was a known criminal!)

For his company, Kochendorfer Group USA Inc., to bid for the contract he submitted fake bank statements, accounting firm reports from a “firm” he had invented, and false financial statements. They showed the firm had plenty of cash when really it had almost nothing.  We shouldn’t laugh but some of it borders on the absurd – he also submitted a “false resume and firm dossier, which described fictitious construction jobs and provided fake references.  White claimed, among other things, that he had overseen the construction of a World Cup soccer stadium in Brazil from 2012 to 2014 when in fact, he  was in federal prison during that time frame, serving a prison term on a prior fraud conviction”.

I mean, if you’re going to lie, you might as well go big – not a local housing development but a World Cup stadium! Anyway, he won the contract but fortunately, the client (the National Guard) discovered the fraud before any work actually took place. White pleaded guilty, not surprisingly, and he will be sentenced in May.

If you are reading this and thinking, “this couldn’t happen here”,  then presumably you always check financial statements and take up supplier references, whether that is talking to another customer of the firm involved or indeed an employer or client if it is an individual contractor. Well done. But it doesn’t always happen.

A few years ago, I advised a firm that was challenging a procurement decision made by a very large UK government central department. Basically, another bidder had told lies in their bid and had won the contract. That bidder had provided a reference that would have exposed a lie – IF the Department has taken up that reference. There were other aspects of the bid that were dodgy and would have been exposed if the buyer had made a call or two. For instance, the bidder claimed that they were strong in certain regions of the UK when they clearly weren’t

When my client challenged this, the Department had an interesting response. They said that they were not required by procurement regulations to pursue references, or indeed that they had any obligation to check that anything a bidder said in their proposal was accurate and true! Now technically that might be correct, but we suggested to the Department that a judge might well make the assumption that a reasonably competent buyer had a duty to do some basic work around bid veracity! The Department went away to think about it, no doubt consulted their lawyers… and then re-ran the competition.

Obviously, buyers don’t always have time to check out every single detail of a bid and all the surrounding information and intelligence about the potential suppliers. But we are responsible for at least assuring ourselves that when someone claims to have built a football stadium in Brazil, they actually did, rather than being in jail at that time.  

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