IMPACT OF INFORMATION AND COMMUNICATION TECHNOLOGY ADOPTION ON PROCUREMENT FRAUD

CHAPTER ONE

1.0 INTRODUCTION

This chapter covers the background of the study, Statement of the problem, purpose of the study, research objectives, research questions and scope of the study, significance of the study and definition of terms.

1.1 General Background to the study

According to Chaffey (2007) Information and communication technology involves the use of computers and telecommunication especially internet to send and receive information. Globally information and communication technology is of utmost importance, the total money spent on IT worldwide has been most recently estimated as US $3.5 trillion, and is currently growing at 5% p.a. doubling every 15 years, IT costs, as a percentage of corporate revenue, have grown 50% since 2002, Weele, etal (2010).Information and communication technology plays a valuable role throughout the Fraud Management Lifecycle. There is not a stage in the Fraud Management Lifecycle that does not benefit from the effective application of information technology resources or suffer from inefficient or inflexible systems, processes, or staff. Information technology resources are frequently the key to the success or failure of the activities in the individual fraud stages and at times to the success or failure of the entire Fraud Management Department (Ernst and Young, 2000), Information and communication technology (ICT) is defined as a process of automatic acquisition, storage, manipulation, movement, control, display, switching, interchange, transaction or reception of data or information Lysons (2000).

Procurement fraud occurs when an employee or other person related to a firm unlawfully gains an advantage in purchasing goods or services for that firm. Some of the more common types of procurement fraud are overpaying for products (and receiving kickbacks), creating and falsely paying duplicate vendors, creating and paying fictitious vendors, and paying for over-shipments from vendors Saunders (1997). According to National fraud authority London (2010), in most developed countries, public procurement takes place within a framework of international obligations, such as the World Trade Organization’s Agreement on Government Procurement or the Procurement Directives made under regional agreements such as the European Union or the North America Free Trade Agreement. Uganda as a country procurement fraud has been experienced in many sectors and occasions including Temangalo land issue, mismanagement of national social security fund and during CHOGM in 2007 in Uganda. According to the Public Accounts Committee (PAC) report on the Commonwealth Heads of Government Meeting (CHOGM 2007) Kampala, the committee estimated that CHOGM expenditure almost doubled from the authorized and appropriate budget of two hundred seventy billions shillings (270,000,000,000/=) to over five hundred billions (500,000,000,000/=). According to PAC report (2010), some roads which were designed by the consultants were never worked on yet the designers had already been paid. Despite the fact there is constant improvement in ICT systems and the huge amount of money invested in ICT by the government, organizations are still incurring heavy losses in terms of high costs in procurement like inflated contracts over the budget, failure to finish work in time, leading to losses of tax payers’ money, this is very disturbing to all the stakeholders as to why such mishaps continue to happen. Basing on this background the researcher therefore seeks to investigate into the impact of information and communication technology adoption on procurement fraud at NSSF.

1.4 Statement of the problem

NSSF is a national savings scheme mandated by government through the NSSF Fund Act, cap 222 to provide social services to employees in Uganda, established by an act of parliament in 1985 (NSSF Records 2010). NSSF uses E-procurement for contracts to achieve benefits such as increased efficiency, cost savings, improved transparency in procurement services. Despite this benefits, it is faced with numerous procurement challenges, in the 2008 acquisition of 564 acre piece of land at 11 billion shillings NSSF was accused of procurement fraud due to failure to advertise procurement of that value, (New Vision 27 October 2008), Apart from that, the PPDA audit report 2012 also questions a number of procurement activities at NSSF including the contract for the supply of fumigation services in which it was marred by irregularities. All these irregularities happen despite the existence of ICT systems at NSSF, This study questions whether the adoption of Information and Communication Technology (ICT) has an impact on minimizing such irregularities that have been reported in the past.

1.5 Purpose of the study

The purpose of study was to establish the impact of Information and Communication

Technology adoption on procurement fraud.

1.6 Specific objectives of the study

The study was guided by the following objectives:

1. To identify the causes of procurement irregularities reported at NSSF.
2. To identify various ICT systems installed to detect such procurement irregularities at

NSSF.

3. To assess the effects of ICT systems adoption on detection of such procurement irregularities.
4. To suggest ways of minimizing procurement irregularities using ICT systems at NSSF.

1.7 Research questions

The following research questions guided the development of this study:

1. What are the causes of procurement irregularities reported at NSSF?
2. What are the various ICT systems installed to detect such procurement irregularities at NSSF?
3. What are the effects of ICT systems adoption on detection of such procurement irregularities?
4. What are the ways of minimizing procurement irregularities using ICT systems at NSSF?

1.8 Scope of the study

The study scope covered the following aspects;

1.8.1 Study scope

The study scope covered the following aspects, the causes of procurement irregularities, the

various ICT systems installed to detect such procurement irregularities, effects of ICT systems adoption on detection of procurement irregularities, the ways of minimizing procurement irregularities using ICT system,

1.8.2 Geographical scope

The study was conducted at NSSF located at plot 95 Kampala road.

1.8.3 Time scope

The period of investigation was from February to September 302017.

1.9 Significance of the study

It will help the procurement department of NSSF in knowing the benefits of ICT on reduction of procurement irregularities.

Since according to Transparency International 2006 Uganda is one of the most corrupt countries in the world. This research will therefore help the government in knowing the causes of procurement fraud.

CHAPTER TWO

LITERATURE REVIEW

2.1 INTRODUCTION

This chapter discusses what various scholars have written about Definitions of information and communication technology, definition of procurement, definition of procurement fraud, definition of procurement irregularities. It mainly covers, the causes of procurement irregularities, the various ICT systems installed to detect such procurement irregularities, effects of ICT systems adoption on detection of such procurement irregularities and the ways of minimizing procurement irregularities using ICT systems at NSSF,

2.2 Definitions of information and communication technology

Information and communication technology refers to the use of automated machines especially computers in dealing with transactions that require interaction electronically between the sender and the receiver (Chaffey, 2007).

Information and communication technology is the process of automatic acquisition, storage, manipulation, movement, control, display, switching, interchange, transaction or reception of data or information ( Lysons, 2000).

Information and communication Technology works in the same way like e-procurement, and is defined as the use of internet to operate the transactional aspects of requisitioning, authorizing ordering, receiving and payment process, for the required service or product.

2.3 Causes of procurement irregularities

Procurement fraud, Can be defined as dishonestly obtaining an advantage, avoiding an obligation or causing a loss to public property or various means during procurement process by public servants, contractors or any other person involved in the procurement process

The following are the causes of procurement fraud according to different scholars;

Conflict of interest, Hansen et al, (2005) noted that during Purchasing. An employee might not disclose a conflict of interest concerning a certain service provider. For example, the employee might award a contract to a relative’s company. This hidden interest is not in the interests of the organization. An employee might receive kickbacks from suppliers in exchange for approval to either order from or make a payment to them, when goods have not been fully supplied or are charged at a higher price. They added that Staff from the donor organization can be bribed by an entity manager, so that during the monitoring process some instances of non-compliance are ignored.

Low staff remuneration, According to, (Rene Hansen et al, 2005), payment can influence fraud in several ways; Staff and external suppliers can be involved in this fraud when obtaining refunds for cancelled workshops, membership and subscriptions, or overpayment for services. Employees can design schemes whereby they duplicate payments to vendors and only deliver one cheque, converting the other to cash. This involves cheque forgery, altering payee amounts or creating duplicate or counterfeit cheques.

Chikanza et al, (2005) asserts that poor payment of employees leads to employee revenge against the organization due to being overlooked for advancement, overworked, in order for them to gain from other sources making them to act in fraudulent manner, leading to fraud.

According to Luway Mongie and Bowman Gilfillan (2009), civil society organizations, believe that they are activists who are not concerned about monetary gain. Employees of organization are engaged with changing the social status of human kind and empowering them with human rights education so that they make informed decisions and choices. With the current change in the economies and political dispensation of many countries, the cost of living is soaring and the risk associated with human rights activism is now too great so that staff feel the need for market related remuneration. Unfortunately most organizations in developing countries are unable to pay attractive salaries, particularly to local staff. Weakens the financial position of organization, as programs are abandoned midway and in some instances staff can go without salaries.

Motivation and revenge, Motivation is another critical element. It includes financial need, challenge, and revenge. When the trusted employee has a financial need in their life, the motivation factor kicks in to permit the individual to perform an illegal act (Joseph R. Dervaes 2006).  Joseph R. Dervaes (2006) asserts that, the financial need can be either real or perceived (i.e.; greed). They become desperate and see no other alternative to solve their financial crisis. Sometimes this is the most visible element of change in a person’s life actually observed by fellow employees in the office. But, sometimes the individual commits fraud by exploiting the organization’s computers, accounting systems, and internal controls as a challenge. Breaking the organization’s codes and passwords is perceived as a game. The most dangerous person is one who seeks revenge against the organization. This wayward employee seeks to financially destroy the organization in retaliation for the poor treatment they’ve received in the past. Employees who have lost their jobs, been passed-over for promotions, or who did not receive a raise fall into this category.

2.4 The ICT systems that can detect procurement irregularities.

The information and communication technology has been adopted in organizations in the following ways. Electronic Fund Transfer (EFT) EFT is based non-electronic transmission of receipts and payments between banks and their customers or the purchasers and suppliers, (Farrington et al, 2006). It enables paperless payments to be made to suppliers “here money travels not paper”.  EFT involves automated digital transmission of money between organizations and banks. The buying organization will make payment to the supplier using EFT, in a more convenient and accurate. ( Lysons et al, 2006).

Electronic Fund Transfer (EFT), is associated with the following advantages; Reduction of costs due to elimination of cheque writing receipt canceling, Increased speed of fund transmission. This is fast, accurate and safe. (Chaffey, 2006).

Electronic Mail (e-mail) E-mail is a process by which letters, orders or other documents are sent by a computer along telecommunication lines to appear on the Visual Display Unit (VDU) at their destination. They emphasize that incase buyers use this technique in the process of buying, sending and receiving of messages can take minutes instead of days. (Leanders et-al, 1998).

E-mail is categorized into two categorizes e-mail broadly into in-bound and outbound. Inbound e-mail is received from outside the organization such as from suppliers. Outbound email is sent from the organization to another an example is from the buyer to the supplier, email reduces on costs associated with movement thus resulting to efficiency on procurement activities. (Kennedy ,2000),

Electronic Data Interchange (EDI) EDI is a technique based on agreed standards, which enables computers in different organizations to successfully send business information of transaction from one to another. They emphasize that EDI reduces on the lead-time simply because transactions are faster and more accurate (Lysons et al, 2006).

EDI involves business transactions like, placing orders, invoices, delivery and payment transactions. EDI works according to standards implying that the organizations using it have to agree on the systems and the software that they are to use (Chaffey, 2007).

Smart cards have numerous benefits and this includes;

1. They provide confidentiality and security of information
2. They are economical and thus reduce on the handling fraud.
3. They offer convenience since they are of the same size like credit cards. They store reasonable amount of information and thus will be easier to be accessed by the organization for use at any time. Smart cards provide effective and efficient means of storage and compatibility, especially with EDI, which facilitates easy movement and exchange of information, (Farrington et al, 2006)

Electronic Hubs (E-hubs)

This device connects several networks together. As used in e-business it means a central repository exchange such as the star network. In the network, a server is a control computer that holds database and programs and programs for many computers (Thompson et al, 2005).

Using electronic hubs the  buyers PCs will be connected together with the suppliers PCs and information regarding business transactions will be conducted, since all the information is kept in the server computer.(Herper et al, 2005),

E-Catalogs, reduces procurement fraud by providing easy communication and the real product in the market. (Accenture (2006),

2.5 Effects of ICT Systems Adoption on Detection of Such Procurement Irregularities.

ICT enables the organization in implementation of the e-catalogue systems which enables an organization to have an efficient system of analyzing supplies capability, Electronic catalogues can be understood as electronic documents, describing the offered products/services of a supplier for a specific call for competition (e.g. prospectuses). Therefore, the content and format of catalogues must enable suppliers to easily and unambiguously present/describe their offered products, including pricing details. In order to fully benefit from the use of catalogues, it is desirable that their content and format, as well as the way catalogue data is exchanged between parties, be standardized, so as to enable their automated processing. Therefore, cross-border interoperability of catalogues is fundamental, (Aberdeen group, 2006).

Visibility of spend, information and communication technology enables Centralized tracking of transactions enables full reporting on requisitions, items purchased, orders processes and payments made. Information And Communication Technology therefore enables an organization in tracking of its expenditure and ensuring that they comply with approved budge, (Lysons, 2006).

Visibility of spend, information and communication technology enables Centralized tracking of transactions enables full reporting on requisitions, items purchased, orders processes and payments made . Procurement staff can be released from processing orders and handling low value transactions to concentrate on strategic sourcing and improving supplier relationships, (Lysons, 2006).

Monitoring and controlling of the procurement process, ICT enables the organization to be in position to analyze the entire procurement process and be able to eliminate the procurement costs associated with the procurement system by creating Standardized approval processes and formal workflows ensure that the correct level of authorization is applied to each transaction and that spend is directed to draw off existing contracts. Compliance to policy is improved as users can quickly locate products and services from preferred suppliers and are unable to create maverick purchases, (Chaffey, 2006).

2.6 Ways of Minimizing Procurement Irregularities Using ICT Systems

Many scholars have written about ways of minimizing procurement fraud and the recommendations are below. Proper management of procurement records Management of records is essential towards tracking of the fraudulent practices in an organization Procurement officers should be encouraged to management their records or to use professional staff to maintain procurement records (lysons, 2006).

The inspectorate of government has revealed that most PEs do not have good record management system that will ensure effective and efficient performance of public procurement auditing. In most cases, the records/books are not kept anyhow to the extent that the auditors cannot sufficiently extract required information and therefore usually frustrated. This also means that plans for performance improvement cannot be easily implemented. (IGG reports, 2010).

Training of procurement personnel new ICT skills procurement operations require experts to carry out public procurement at the private and

public sector levels most of the procurement duties are carried out by some un qualified procurement professionals since procurement is a relatively new profession in some countries unlike other professions like law or medicine so most of this people need to be trained or an organization should recruit qualified procurement profession to carry out procurement duties this will help organization in reducing fraudulent practices in procurement, Ntayi (2005). The PPDA as the regulatory public procurement body should provide enough personnel to carry out the function.  Besides, there should be training to provide knowledge and skills of the scope and dynamics of public procurement as required by the (PPDA Act, 2003)

Procurement entities should provide conducive environment that should be supported by trained skilled and professional report. The reports add that non-compliant officials should be prosecuted in courts of law.  PAC Reports (2009-10).

Employing procurement auditors to oversee the procurement process

The government or private companies should employee procurement auditors in order to examine the procurement process of the system so as to identify the fraudulent stages in the procurement process so that the responsible authorities are made aware of the existence of the fraudulent procurement practices so that such criminals can be taken to courts of law and

CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter presents the methodology which consists of the research design, area of study, study population, sample population and selection, sampling technique, data collection method, data quality control, data collection procedures and limitations of the study.

3.1 Research design

Qualitative research designs were used. The researcher used the above method because many aspects covered in the study concerning the impact of information and communication technology adoption on procurement fraud at NSSF given the complex nature of NSSF, qualitative research method was used because it collects information within a short time.

3.2 Area of the study

The study was carried out at NSSF located at plot 95 Kampala road.

3.3 Study population and sample size

The study targeted NSSF evaluation committee members, contracts committee members, ICT department members, procurement staff, and accountants/auditors of NSSF.

3.4 Sample size

According to (Amin, 2005) sampling involves selecting a sample of the population in such a way that samples of the same size have equal chances of being selected. The sample comprised of 30 respondents who included evaluation committee members, contracts committee members, ICT department members, procurement staff, and accountants/auditors of NSSF.

While carrying out research, purposive sampling was applied to the below different categories of respondents.

Table 3.4.1 Sample size

SOURCE: NSSF

3.5 Data Collection Instruments

The major instruments for data collection were questionnaires guide. Surveys were one part of a complete data collection and evaluation strategy. The major method of data collection for the study was survey, which was done using selected instruments like questionnaires.

The questionnaire provided respondents with ample time to comprehend the questions raised and hence, they were able to answer factually.

3.5.1 Questionnaires

The questionnaires were used to collect quantitative data. The researcher administered the questionnaires to all the respondents, which were designed basing on study objectives and questions. Respondents filled in the questionnaires themselves. The questionnaires were close ended with likert scales questions.

3.6 Reliability and Validity of data

Data analysis in this study focused on data validity and reliability. To establish the validity of the questions, pre-testing was done amongst the selected categories of respondents. Their comment was incorporated in the final instruments to suit the data requirement of the study. The final amended research instrument was reviewed jointly by the researcher and the supervisor. Reliability was checked using the test – retest practice advocated for by Amin (2005). In other words, the questions were put to course mates and their comments noted, they were then presented to the respondents and their views were compared with those of the course mates. On receipt of the questionnaires, manual editing was be done, followed by coding. Frequency count of different variables was done and this gave the number of occurrences and percentages out of total occurrences.

3. 7 Data collection methods

Source of data was from both primary and secondary sources.

(a) Primary data

Primary data was obtained from the questionnaires administered on the target respondents to gain opinions and practices on impact of Information and Communication Technology adoption on procurement fraud at NSSF.

(b) Secondary sources Secondary data is data which has been collected by individuals or agencies for purposes other than those of a particular research study. It is data developed for some purpose other than for helping to solve the research problem at hand (Bell, 1997). This comprised of literature related to impact of information and communication technology adoption on procurement fraud in relation to the case study. Secondary data was sourced because it yields more accurate information than that obtained through primary data, and it is also cheaper.

3.8 Data collection procedures

Upon receiving the University permission to carry out research, the area of study was visited for purposes of familiarization.  The researcher sought permission from staff and once allowed to proceed with research, questionnaires were issued and an interview was carried out with the selected staff.

3.9 Quality control of data instruments

The instrument was taken to the supervisor to check its correctness there after pilot study was carried out to find out if it measures what it is meant for.

3.10 Data processing and analysis

The raw data was coded, edited, and arranged ready for analyzing only completed raw data was analyzed using statistical tables and graphs.

3.11 Limitations of the study

Financial constraint, this is in terms of financial support for transport, printing questionnaires among other requirements that require finance. However this shall be overcome by soliciting money from friends, relatives and sponsors which will assist in making my work a success.

Respondents may delay in filling the questionnaire and fear to give information, but they will