Research consultancy

AWARENESS OF THE PROCUREMENT LAW AND DETECTION OF FRAUD

CASE STUDY: KIRUHURA DISTRICT LOCAL GOVERNMENT

This study was conducted at Kiruhura District Local Government and the purpose was to establish whether the awareness of the procurement law is effective in detecting fraud at Kiruhura district local government.

The research objectives were to establish the level of general awareness of the procurement law, to establish the impact of level of awareness on fraud detection, to identify the Procurement phases that are prone to fraud and to determine ways of controlling fraud in procurement at Kiruhura District Local Government.

The study was a descriptive research design which emphasized both what was raised in the literature and the opinions of respondents about the awareness of the procurement law and detection of fraud and the researcher applied both qualitative and quantitative approaches in the survey for data analysis.

The study showed that there is a positive relationship between awareness of the Procurement law and fraud detection.

This study recommends that Kiruhura district staff, should ensure that all guidelines of the PPDA Act are followed, establish a strict ethical code of conduct by the district administration and implementing laws like prosecuting fraudulent officers in the courts of law as required by the regulatory body, and that the district procurement staff should employ qualified staff and also make sure that the right officers are the ones involved in such processes in order to reduce errotic documentation in procurement operations.

CHAPTER ONE

INTRODUCTION

This proposal is about awareness of the procurement law and detection of fraud in Kiruhura district local government as a case study. Kiruhura District Local Government is a new district with a collection of different tribes and professions. Kiruhura District Local Government is headed by Chief Administrative Officer (CAO). It is also in the center of a country that is reported as high ranking in corruption (Transparency International 2006).

1.1 GENERAL BACKGROUND

Global procurement reform trends

Procurement law globally seeks to guarantee value for money spent by stakeholders in the supply chain. The law recognizes and promotes the necessity for procurement standards which should be enforced through implementation practices. It also seeks to deter procurement and disposing entities from undertaking shoddy procurement and regulates the conduct of officials involved for effective and efficient procurement. Consequently, procurement law makers expect compliance as the ultimate objective, but this is often not achieved as there are irregularities arising from buyers, suppliers or both.

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 (Agaba and Shipman2008).

According to Public Procurement and Disposal of Public Assets Authority report (2007). The Government of Uganda initiated reforms in the public procurement and disposal sector in 1997, following the enactment of the 1995 constitution and the demand for improved governance and public sector management. The reforms were initiated against the backdrop of lack of accountability and transparency and absence of a culture of value for money procurements. According to the PPDA report 2007, the development partners recommended to government to put in place appropriate public procurement practices based on international standards which are fair, transparent, competitive and non-discriminatory to all potential providers of goods, services and works.

The Act empowers all local Governments that receive funds have to ensure that those funds are spent solely on the procurements which are specified through bidding contracts. The Local Government Act was put in place to operationalize the policy of decentralization adopted by the Government of Uganda (1996) which devolved powers and functions to the districts for improvements in service delivery, including procurement service delivery.

One of the provisions of the Act is that appropriate measures shall be taken to enable local government units to plan, initiate and execute policies in respect of all matters affecting people within their jurisdiction. The local governments shall oversee the performance of persons employed by government to provide service in their area and monitor the provision of services or the implementation of projects in their areas. These services include procurement and procurement auditing.

Awareness of procurement law

According to the Bar (2009), awareness of the procurement law can determine the extent to which a procurement entity becomes fraudulent. Awareness of the buyer’s law on supplier obligations, for example, implies buyer’s alertness on quality of deliveries and related aspects. On the other hand, the supplier should be aware of buyer obligations with respect to price. The law and its user awareness are both meant to be instrumental in curbing procurement fraud. In spite of this however, fraud remains prevalent across many continents in the whole world.

Prevalence of fraud

It is noted that fraud is practiced across genders and is on the increase in the US, UK, the Middle East countries and the developing world where it is more rampant. According to South African experience the Office for Serious Economic Offences (OSEO) investigated 300 Political Leaders in the year 2005 for unethical conduct in procurement including corruption, fraud and embezzlement. The work load in investigating such offences is becoming inequitable (Association of Administrative Professionals and Managers, 2006).

According to the Association of Certified Fraud Examiners (2009) procurement fraud is done through falsification of documents, non delivery of services that are paid for, inflation of procurement prices and presentation of personal procurement expenses as business expenses. The association notes that procedures, rules and regulations are ignored and that some procurement officers double in initiating procurement and supplier selection as well as initiating procurement vouchers, all of which are acts that perpetuate fraud. Suppliers have business links with company employees and yet others use their relatives to supply goods and services at inflated prices.

Emergence of procurement law in developing countries

In Uganda, the procurement law is governed by the PPDA Act 2003 which was enacted and implemented to address the inadequacies of the former Central Tender Board. The law spells out the acceptable and prohibited procurement practice, recognizing that prohibited conduct constitutes malpractices and indeed an offense. The procurement law lays down the roles, expectations and limits of procurement officers engaged in procurement. However, whereas the law is clear in these aspects, there are officers who have flouted the law by engaging in procurement practices prohibited by the law. For example, according to the Auditor General reports (2008-2010), most district local governments in Uganda have engaged in violations against the provisions of the PPDA Act (2003).

The procurement law defines procurement fraud as deceit perpetrated by an individual in order to gain unfair benefit or rewards whilst making purchases from external suppliers. The law prohibits procurement fraud.

There have been persistent complaints about the implementation of the procurement law in Uganda. Various reports by government institutions like IGG, PAC and AG have disclosed that fraudulent procurements are done without following the provisions of the PPDA Act 2003. They point out specifically that evaluation and contracts committees get involved in procurements with conflict of interest. In other cases, the PDE presents overstatements or understatements of bidder eligibility and in some cases the evaluated price of the best evaluated bid is not used as the basis for evaluating the bid.

Also, whereas the law provides that procuring and disposing entities ensure that bidders have fulfilled their tax obligations, this is often bypassed, thereby causing financial loss to the government and less value for money spent.

Kiruhura district local government procurement is governed by the Local Government Act (2006) which requires that resources are utilized economically and efficiently and that there is sound management of resources and sufficient service delivery to the population.

Kiruhura district local government council started its operations in 2005 after the area was granted district status by the central government. It is headed by an LC 5 chairperson as the political head and chief administrative officer as the chief executive. The council is a procurement and disposal entity responsible for, among other duties, district procurements through structures that include personnel, policies and laws. The challenge for procurement personnel in the council is to practice non-fraudulent procurement as spelt out by the PPDA Act 2003 against country wide reports that district councils do shoddy procurements by using suppliers that have business links with council employees, their relatives and inflating supplier prices. There is also concern that some services are paid for but are never delivered.

1.2 STATEMENT OF THE PROBLEM

Kiruhura is a relatively new district that came into existence in 2005 just two years after the enactment of the procurement law in (2003). The law took immediate effect as procurement systems and personnel were sourced and put to respective responsibilities. In spite of these operational structures, however the Annual Assessment of Minimum Conditions and Performance Measures for Kiruhura district reported that overall performance status attracted penalties (assessment reports 2007-2008). The penalties meant the district council got 20% less of expected grants from central government to support procurement capacity and performance. The reports showed that procurement requirements by user departments should always be forwarded to contracts committee at the beginning of the financial year to avoid delays in procurement process. The assessment report 2008 revealed that there was no evidence that dates of meetings and closing dates for submission of requests were publicized. Besides, there was no evidence of below threshold procurements remitted to the contracts committee. In some sub counties, some procurement was above threshold. This implies that the district council’s foundation and experience in procurement law and, consequently, detection of fraud is weak. Sufficient awareness of procurement law is associated with the conduct of councilors to achieve desired objectives, including fair, transparent and value for money procurement. However, if it is insufficient it can lead to unfair advantage, vested interest and insider deals and hence procurement fraud.

Local Governments have recently been reported as corrupt institutions, with its senior and low rank cadres cited in embezzlement, misappropriation and falsification of transactions (Onyango Obbo 2007). Besides, the Auditor General, the Public Accounts Committee and The Inspectorate of Government have raised allegations of mismanagement in district procurements. This is in spite of the fact that procurement law is in place as well as the presence of PPDA as a regulatory authority. The accusations by the central government and the media suggest that District Local Governments conduct in the management of public procurement affairs is questionable. The test for integrity in the conduct of Kiruhura District Local Government officials lies with compliance or non compliance with the PPDA Act (2003) as well as awareness of the law. It is not clear whether the scope of awareness of procurement law is helping to detect fraud. At present, there is nothing to show that Kiruhura District Local Government is providing better services and facilities (Local Government Act, 2006). This study sets out to establish the awareness of the procurement law and detection of fraud at Kiruhura District Local Government council.

1.3 PURPOSE OF THE STUDY

The purpose of the study was to establish whether the awareness of the procurement law is effective in detecting fraud at Kiruhura district local government.

1.4 OBJECTIVES OF THE STUDY

The study was guided by the following objectives:

To establish the level of general awareness of the procurement law at Kiruhura District Local Government.
To establish the impact of level of awareness on fraud detection at Kiruhura District Local Government.
To identify the Procurement phases that are prone to fraud in Kiruhura District Local Government
To determine ways of controlling fraud in procurement at Kiruhura District Local Government.

RESEARCH QUESTIONS

The following research questions guided the development of this study:

What is the level of general awareness of the procurement law at Kiruhura District Local Government?
What is the impact of level of awareness on fraud detection at Kiruhura District Local Government?
What Procurement phases are prone to fraud in Kiruhura District Local Government?
What are the ways of controlling fraud in procurement at Kiruhura District Local Government?

1.6 SCOPE OF THE STUDY

Subject

Two major areas constituted the subject of this study. The study focused on how people are aware of the procurement law and detection of fraud

Geographical

The study was conducted at Kiruhura district in western Uganda. This was because PPDA is for all big Public entities and Kiruhura is one of them, the district and its council is relatively young and therefore more vulnerable with respect to awareness of the law and detection of fraud, thus being used as a case study.

Time

The study covered a period of 3 years, from 2009-2012, and this was carried out between February and July 2012.

1.7 SIGNIFICANCE OF THE STUDY

This study may be significant in a number of ways. It may help Kiruhura district councilors to gain more awareness of the procurement law. Equally the study findings will help councilors to identify and avoid fraudulent procurement. The study findings will assist policy makers to enforce compliance with procurement law.

The study findings may assist future researchers in this special field of specialization. The study findings will expose the levels of awareness of and compliance with procurement law in Kiruhura District Local Government.

Finally, the study findings may enable the researcher to acquire more knowledge and skills particularly on awareness of the procurement law and detection of malpractices

1.8 DEFINITION OF KEY TERMS.

Awareness.

It refers to the capability of getting and using procurement knowledge for rightful use. It affects the contracts committee members, how they perform, and the outcomes of such performance.

Procurement. According to Kenneth Lysons and Brian Farrington (2006), procurement refers to the acquisition of goods, services or works through purchase, rent, lease, franchise or any other legal means considering the 3 Rs like from the Right: place, time, price, quantity, and quality by use of share holder’s money.

Procurement Fraud is a practice which includes the offering, giving, receiving, or soliciting of anything of value to influence the action of a public official in the procurement or disposal process or in contract execution. (The Public Procurement and Disposal of Public Assets Act 2003)