Tag Archive for: Fraud

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Guildford Council “Fraud” – WTF?!

After writing last week about competence in UK local government, as if by magic, a case of alleged fraud in a council very close to my home popped into view the other day.

Now several of my local councils haven’t been doing very well in recent years in terms of looking after taxpayers money. The Tory council in Surrey Heath, where I live, now ousted by the LibDems, bought well over £100 million worth of commercial property in Camberley right at the top of the market, and is now sitting on a loss in asset value of £50 million or so. Woking council, a few miles to the east, has basically gone bust after property deals and investments that make Surrey Heath’s look minor.

And now Guildford, to the south-east, has published a report into what is an alleged fraud and is at best a prime example of Bad Buying in its housing department. Two employees have been suspended and five agency workers had their contracts terminated.

The report to the Council by Jeanette McGarry of SOLACE, (the society of local government CEOs), is good but focused more on the governance issues rather than the procurement events. That may be because the matter is with the police now and an arrest was made in March, so precise details of the core issues may be sub judice.

But basically, a contractor working on the council’s housing stock was paid far more than the original contract value (which is not disputed) and also there was a possibility (as the report says),

  1. That work may have been ordered when it wasn’t necessary;
  2. That work may have been ordered, invoiced and paid for when it was not completed at all or;
  3. Not to a satisfactory standard;
  4. That duplicate invoices may have been submitted and paid for the same work;
  5. That works may have been ordered and undertaken that were not the responsibility of the Council.

Back in 2022, the council agreed to spend £24.5 to update its housing stock. But there were no in-house surveyors and doesn’t appear to have been much in the way of internal procurement either, as “Several agency staff were appointed and were able to appoint housing repair and maintenance contractors”.

A three-year contract for £2.4 million was agreed for EICR (electrical installation condition reports) testing and inspection to Seville Developments Ltd, “under direct award” via a framework. This was apparently achieved under the Council’s procurement process and “was found to be compliant”. I’d like to know more about how a direct award of that size could be acceptable, and if there was no competition within the framework, but the report does not go into that.

But the council realised in 2023 that expenditure had reached £18.9 million with Seville, with no authorisation or action taken such as contract variation. At this time, “the Corporate Procurement Team was staffed solely by temporary officers and there is evidence that an officer identified the unauthorised expenditure and raised this with the Housing client but did not escalate the matter”.  

Whistleblowing concerns were raised in 2023, and the staff suspensions and terminations took place in September 23, and in March 24 “An arrest was made by the South East Regional Organised Crime Unit”.

If we look at the anti-fraud measures outlined in my Bad Buying book, we can see a number of flaws in the Guildford process. There will I suspect be questions around the lack of transparency in supplier selection. Then we have the issues on signing off work – was that power too concentrated? Perhaps the biggest question is how on earth invoices that exceeded the contract value by £16 million got signed off and paid – that entire budget control process at Guildford must have been absolutely pathetic.

But an interesting point which is not one I really covered in the book is this dependence on contractors and temporary staff. To have a procurement team that is entirely “temporary officers” brings obvious dangers. It is not that contractors are necessarily crooks, but they cannot have the knowledge of the organisation and the internal relationships that are vital when things go wrong or strange events occur.

I also don’t understand why if Guildford was so short of staff, they didn’t call on Orbis for help. Orbis is the shared service organisation, hosted by Surrey County Council, that runs procurement for Surrey, East Sussex, and Brighton councils, and does a pretty good job. Surely they could have assisted Guildford if the council there couldn’t find its own procurement staff?

Anyway, another case study for “Bad Buying 2”!

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Avoiding Bad Buying in UK Local Councils

As the results come in from local elections in England, it is clear that basically the country just wants the Conservative Party to go, the sooner the better. I don’t think there is huge enthusiasm for anyone else but most of the public are just sick of the infighting, incompetence and idiocy of the ruling party in recent years.

However, will changing our local councils make things better? A very interesting article in The Times   looked at data provided by a new agency, the Office for Local Government (Oflog). Ministers set up Oflog last summer to provide “authoritative and accessible” performance data to support improvement in local government.

The data looks at the efficiency and effectiveness of local councils across 27 categories in five main areas: waste management, corporate and finance, adult social care, planning and roads. It revealed for example that some councils have recycling rates that are twice as good as others and that some authorities are failing to process half of planning applications on time, while others are not late on a single one. The figures also show the extent to which many councils are struggling with debts, with six local authorities already having declared themselves bankrupt since 2021. That is certainly in part becuase of lower funding from the centre of government, but competence (or lack of) seems to come into play too in most cases.

The Times accessed all the data to look at variations, which are huge and pretty inexplicable other than by sheer management competence. For example, in the year to September 2022, Hinckley & Bosworth borough council in the East Midlands completed less than half of household planning applications on time. But Tamworth borough council, just 30 miles away, was not late on any.  

The Times also came up with league tables to see if there was any political correlation with performance. Nottingham (Labour controlled) was the worst performing authority. Torridge district council, on the north Devon coast, came top of the table – it is run by independent councillors.

But the results actually supported a theory I’ve held for years, suggesting it is not that the Conservatives (Tories) are generically better or worse than Labour in terms of competence (with the Lib Dems in the picture too in a smaller way). Of the ten worst-performing councils, six are controlled by Labour. Of the ten best-performing councils, six are in coalition or are run by independents, while the Liberal Democrats and the Conservatives run two each.  Eight of the ten worst-performing county councils or rural unitary authorities are controlled by the Conservatives – while seven of the best-performing ten are in coalition or run by independents.

So what it does seem to show is that the worst-performing councils are almost always in areas, towns or cities where there has been a long-term dominant party, whether that is Labour or Tory. Conversely, the best-performing councils are generally more contested, so independents rule the roost, or no single party has a clear majority, or power has changed hands over recent years.

That stands to reason really. If there is a long-term dominant party, there is more scope for arrogance to creep into decision making, or fraud and corruption to spring up, and there is less scrutiny of decisions. “Bad buying”, whether it is just wasting money on frivolous or unnecessary spending, or more serious fraudulent or corrupt expenditure, is more likely where power is well entrenched. Take fraud for example. You are less likely to bribe a councillor, or to stand as a councillor yourself so you can influence planning decisions for nefarious purposes, if it is not clear who will be in charge after the next election.

Similarly, some of the arrogance we have seen in councils such as Woking, where the dominant Tory council invested hundreds of millions in unwise property deals, or in Nottingham, where the council (Labour in power since 1991, 50 of 55 councillors) thought it could run an energy firm better than the professionals, came about I’d suggest in part at least because the councillors thought they were unchallengeable and had complete power.  My own council, Surrey Heath, has also lost money – not as much as Woking though – on property deals put in place by a very arrogant Tory leadership. But last year for the first time ever the Lib Dems took power here.  

However, the correlation is far from perfect. Thurrock, where the council is now suing “businessman” Liam Kavanagh, who allegedly cheated the council out of over £100 million with dodgy solar farm investment schemes (hopefully the ex-finance head at the council will end up in court too), has actually had a few changes of council over the years.

But Liverpool is another example where single-party dominance led to a culture of corruption. Even after commissioners came in to run the City in 2021, the job description I saw for the Head of Procurement role still did not suggest a real appetite to put in place all the controls and governance you would want to see as a taxpayer!

Anyway, all this suggests that if your main interest as a voter is in the effective running of local services, rather than any deep political beliefs, you should aim to keep your local council and councillors on their toes by creating a competitive environment. How you can best do that will vary by area and even local electoral ward. But that seems the best strategy if you want your money to be used honestly and well.

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What Happened to Ethics, we ask “Professional” Services Providers!

Bad buying obviously covers every potentially sector and category, but I have had a long interest in professional services spend and procurement for many years, including as co-author of “Buying Professional Services”, my first published book.

A couple of recent stories highlighted that although most of the people working in that sector are highly educated and intelligent, they can still behave just as badly and even illegally as any petty criminal.

The first story was about a survey of lawyers run by the “rolllonfriday” website, anonymous of course given that 35.5% of the respondents admitted that at some point they have been guilty of adding time that hadn’t been incurred to their time sheets (which then means the invoices to clients are also inappropriately inflated). As the report said,

Thirteen percent admitted they did it regularly, 12.6% confessed to being “occasionally” culpable, while around 10% said it was something they had done, albeit “rarely”. 

Well, that probably won’t come as any surprise to most of us, but it was interesting to see our suspicions as cynical buyers confirmed. It reinforces the view that whenever possible, engaging professional service providers on some sort of fixed fee, outcome, output or success based basis is better than a simple “time and materials “ hourly or daily rate.

However, it can be difficult in the world of law, because we often don’t know just how much work will arise from a particular assignment, particularly if other parties are involved (litigation for instance). So it is hard for the parties to arrive at a sensible view of risk, which you need in order to agree a fair fixed price.

You should always look for where you can define some sort of clear work package and agree a price for that, but one thing buyers can also do is challenge their provider if bills look “padded”.  Many people feel nervous about actually digging into a statement and saying to their lawyer, “so did you really spend 30 minutes on that two-line email”?

Now they are unlikely to immediately back down and reduce that bill, but next time, they might just think “perhaps I’ll just put 20 minutes for this email” because they know you will challenge. So don’t be scared to be a nuisance and analyse billing carefully.

The second piece of news was even more shocking. Consulting and auditing firm KPMG was fined  in  the Netherlands for endemic cheating around professional examinations taken by their staff. As the Times reported, “The Public Company Accounting Oversight Board in the United States found that between 2017 and 2022 hundreds of KPMG workers in the Netherlands, including senior partners and managers, had shared questions and answers with one another. This included for exams that they had to sit to test their understanding of professional ethics”.

Cheating on an ethics test! You have to laugh really. But I don’t understand why it is the US regulator doing the fining though rather than the Dutch equivalent.  

To make it worse, KPMG lied to the investigators, saying they knew nothing at senior levels about the answer sharing – but it turned out two board members had indulged in these activities themselves! A $150,000 fine was also imposed on Marc Hogeboom, who used to run KPMG’s Dutch audit division, and he was banned for life from working for any firm that audits American public companies.

These people are auditing public companies and giving investors confidence (or otherwise) in those businesses – so having the right skills and training is critical beyond just KPMG’s own operations. The cheating means there may be incompetent people doing important work, which is not a good thought, and of course it means buyers have paid for people whose qualifications (which largely determine the level of fee paid) were bogus. Maybe some big clients should sue the firm now.

It seems that it isn’t the first time this has happened and KPMG is not the only firm that has transgressed. Last week the American regulator also fined Deloitte’s businesses in the Philippines and Indonesia $1 million each for answer-sharing on professional tests. And two years ago EY was fined $100 million by the US Securities and Exchange Commission, because a “significant number” of its American auditors cheated on the ethics component of their Certified Public Accountant exams.

The lack of ethics and morals of those involved is quite shocking for supposed “professionals”. Whilst the latest fine was substantial, it does not seem to be enough really to reflect the seriousness of the crime. I think it would have been appropriate to ban KPMG from all audit work in the Netherlands for a few years. I also think maybe a few jail sentences for the most senior people involved might have made others sit up and take notice.

So the advice to procurement people is this. As with the lawyers, don’t necessarily believe everything your consultants or auditors tell you, or everything they put on the invoice, just because you think they are ethical and trustworthy professionals. Not all seem to fit that description.

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Horizon – Robert Colvile Investigates and Fujitsu Owns Up

Coming back to the Post Office Horizon scandal, last week at the long-running enquiry into the events, Fujitsu finally apologised and owned up to their contribution to the terrible events. The firm has now promised to make substantial contributions to the payments which should go to the affected sub-postmasters shortly, we hope.

As the BBC reported, “The boss of Fujitsu’s European arm says it has “clearly let society down, and the sub-postmasters down” for its role in the Post Office scandal.

Paul Patterson admitted there were “bugs, errors and defects” with the Horizon software “right from the very start”.  Mr Patterson also reiterated the firm’s apology for its part in the scandal.

Some of the Post Office staff involved in prosecuting the sub-postmasters came over at the enquiry as being both stupid and vindictive, enjoying their role as the “bad guys”. Clearly, the Post Office saw a role for nasty, vicious people in this case.

Then, in the Sunday Times today, Robert Colvile has written an excellent article about the history of the Horizon software. I was also surprised and pleased to find that he quoted from my book, Bad Buying, within his article. He reviewed the book (pretty positively) when it came out in 2020.  My quote is nothing to do with Horizon though – Colvile uses another story of mine to demonstrate general issues with contract management in the public sector.

But he makes a connection that I had missed (and I should have spotted). Horizon started with an ICL project, “Pathway”,  working with the then Department of Social Security back in the 1990s to automate benefits payment. I was actually Procurement Director at the DSS for part of the time this pretty lousy programme was running! But I had not realised it morphed into Horizon, and along the way the failing ICL got acquired by Fujitsu.  

When I joined the DSS, in 1995, I was not exactly welcomed by the people running that programme. I was struggling to get any traction with the programme leadership. So I asked my boss whether I should push harder to get involved. “Do you have plenty of other things to do”, he asked me. Yes, I replied, loads of stuff. “In that case, I think I would leave that programme alone”, he advised. He knew it was a dog and was saving me from failure by association.

That was when the Minister Peter Lilley stood up at the Tory Party conference and showed off the “benefits payment card”. It wasn’t real of course – there never was a working benefits payments card. His was mocked up in his hotel suite the night before by his aides, I was told.

I followed the Horizon case from the beginning and I thought I wrote about it on Spend Matters many years ago but I can’t find the article now, so maybe I just thought about covering the case. I do remember my internal debate about whether to include the story in my Bad Buying book, but it was complex, unfinished and subject to ongoing legal action, so I decided not to, unfortunately perhaps. Although I don’t think my book would have had any effect compared to the TV programme.

Let’s just hope now that the compensation gets sorted out quickly for those affected. And I’ll come back to another issue which Colvile comments on, the question of why Fujitsu has continued to win government contracts since the Horizon affair became public. That takes us into some interesting questions about public procurement regulations, so I’ll save that for another day.

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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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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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Always Check Those Invoices!

The US Government Department of Justice recently issued a news release.  

“Booz Allen Hamilton Holding Corporation has agreed to pay the United States $377,453,150 to resolve allegations that it violated the False Claims Act by improperly billing commercial and international costs to its government contracts. Booz Allen, which is headquartered in McLean, Virginia, provides a range of management, consulting, and engineering services to the Government, as well as commercial and international customers”.

I do love the precision of the final $150 on that number! Couldn’t they have rounded it slightly?

The accusation was that between 2011 and 2021, the consulting firm charged costs to its government contracts and subcontracts that should instead have been billed to its commercial and international contracts. That particularly applied to some indirect costs. So the government was allegedly paying for activities and services that had nothing to do with the work the firm was actually doing for government organisations.

Now allocating overheads can be a tricky issue, as many of us know. And Booz Allen issued a statement, as you might expect.

“Booz Allen has always believed it acted lawfully and responsibly. It decided to settle this civil inquiry for pragmatic business reasons to avoid the delay, uncertainty, and expense of protracted litigation. The company did not want to engage in what likely would have been a years-long court fight with its largest client, the U.S. government, on an immensely complex matter. The company fully cooperated with the government and is pleased to move forward.”

So there is no admitting liability or guilt here. I can understand why the firm does not want a long, expensive fight – on the other hand, if you were 100% sure of your position, many firms would choose to take it further rather than handing over quite such a large amount of cash.

The most amazing element of this story is this. The investigation was sparked by a whistleblower, a former Booz Allen employee, Sarah Feinberg, who tipped off the authorities about the alleged misconduct from 2011 to 2021. And now she will receive no less than $69,828,832 as a thanks (it’s that precision again…)  

$69.8 million!  Good grief, I’m going to have a good think now about every firm I’ve ever worked for and whether they might have done anything “naughty” in their dealings with the US government …  

The moral of thee story is simple. Check your billing from professional service firms. I once took on a senior interim commercial/procurement role in government with an organisation that had around 100 consultants from one firm working on its major programme. That was £500K A WEEK we were paying this firm (it better be nameless…)  

I took a look at the invoices – incredibly there was no contract manager for this contract – and found that amongst other things, we were being billed for the senior partner’s assistant. The partner was only working about a day a week on our project, but we appeared to be paying a grand a day, every day, for his PA. We were also billed for the whole day for the whole team when I knew they had stopped work at lunchtime for their office Christmas Party! “An unfortunate error” I was told.  I saved £50K with one phone call there…

Of course, if you can structure any professional services assignment on a fixed price basis, most of these issues are avoided. That approach is usually – although not always – better for the buyer and actually arguably for the provider too. That is another question in this Booz Allen example. Why was so much government work being done on what sounds like a pretty loose “time and materials” basis?

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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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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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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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