RESEARCH CONSULTANCY

IMPACT OF INFORMATION AND COMMUNICATION TECHNOLOGY 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 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).In the modern world, competition among organizations is a common issue.

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 Tamangalo 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 on procurement fraud at Tororo district local government.

Procurement fraud in developing country.

According to transparency international (2006) unethical code of conduct including corruption, embezzlement, and fraud is high in developing countries and countries in east and west Africa have one of the highest levels of corruption and fraud in the world, though countries like Singapore and china also experienced high levels of fraud especially in early nineties in procurement Singapore in particular has reduced significantly and is arguably one of the least corrupted in the world this is mainly attributed to the harsh punishment given to the culprits in Singapore and above all the government commitment in fighting the vice and likewise china’s score in fraud has reduced significantly over the past decades. 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.

1.3 Statement of the problem.

Tororo district local government is one of the oldest districts in Uganda, with numerous procurement challenges; in the new vision dated 8^th April 2013, LCV chairperson of Tororo district accused contractors of hiring cheap labour who do shoddy work, failing to meet deadlines, un finished contracts by contractors, one contactor winning many contractors beyond his capacity, bribery among contractors all such allegations point towards weakness in procurement, Besides the PPDA audit report may 2013 cited weakness of the 8^th/08/ 2012 contract of grading and gravelling quarry and Baruti roads, the report pointed weakness including failure to communicate to un successful bidders, , no time lines were indicated, and above all the contract expired on 31^st/ 10/2012 but the contract was still on site with no evidence of extension of the contract . This is in spite of the fact that procurement law is in place as well as the presence of PPDA as a regulatory authority. this report by PPDA suggest that Tororo District Local Governments conduct in the management of public procurement affairs is questionable, basing on this weakness in procurement department, the researcher therefore intends to investigate the impact of information and communication technology on procurement fraud at Tororo district local government.

1.4 Purpose of the study

The purpose of study is to establish the impact of information and communication technology on procurement fraud.

1.5 Objectives of the study

The study shall be guided by the following objectives:

To examine the causes of procurement fraud at Tororo district local government.
To identify the various ICT techniques that can be used to reduce procurement fraud in Tororo district local government.

To suggest ways of minimizing procurement fraud in Tororo district local government.

1.6 Research questions

The following research questions shall guide the development of this study:

What are the causes of procurement fraud at Tororo district local government?
What are various ICT techniques that can be used to reduce procurement fraud in Tororo district local government?

What are the ways of minimizing procurement fraud in Tororo district local government?

1.7 Scope of the study

The study scope will cover the following aspects;

1.7.1 Study scope

The study scope will cover the benefits of ICT on reduction of procurement fraud, causes of procurement fraud, and various ICT techniques used to reduce procurement fraud.

1.7.2 Geographical scope

The study will be conducted at Tororo district local government.

1.7.3 Time scope

The period of investigation will be from February to September 30^TH 2014.

1.8.0 Significance of the study

It will help the procurement department of Tororo district local government in knowing the benefits of ICT in reduction of procurement fraud.

Since according to transparency international 2006 Uganda is one of the most corrupted countries in the world this research will therefore help the government in knowing the causes of procurement fraud.

This research will also benefit future researchers in enriching their knowledge on the various ICT techniques used to reduce procurement fraud in an organization hence helping them choose on the pool the best technique to use.

According to auditor generals report (2008) the government of Uganda looses billions of tax payer’s money due to fraud in the procurement department of the government different local governments this research will therefore help the government discover how to save the tax payers money from losses.

1.9.0 Definitions of key terms

1.9.1 Information and communication technology

Information and communication technology is defined as automatic acquisition, storage, manipulation, movement, control, display, switching, interchange, transaction or reception of data or information. Lysons (2003)

The term ICT is now also used to refer to the convergence of audio-visual and telephone networks with computer networks through a single cabling or link system, There are large economic incentives (huge cost savings due to elimination of the telephone network) to merge the audio-visual, building management and telephone network with the computer network system using a single unified system of cabling, signal distribution and management. William Melody etal (1986).

1.9.2 Fraud

Fraud is the crime of gaining money or financial benefits by a trick or by lying, oxford dictionary (1999).

Fraud is a purposeful deception, misrepresentation, or concealment of facts intended to cause injury or loss to another party, typically for the sake of one own direct or indirect gain. Norman Katz (1996),

1.9.3 Procurement

Procurement is the acquisition of goods, services or works from an outside external source. It is favorable that the goods, services or works are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location. Corporations and public bodies often define processes intended to promote fair and open competition for their business while minimizing exposure to fraud and collusion.

Weeleetal (2010).

Procurement simply means acquisition by purchase, rental, lease, hire purchase, license, tenure, franchise, or any other, contractual means, of any type of works, service, or supplies or any combination PPDA ACT 2003.

Procurement is a function for obtaining by purchase lease or other Legal means equipment’s, materials, supplies and services required by an undertaking for use in production. Lysons (2000).

1.9.4 Procurement fraud.

According to National fraud authority (2011), procurement fraud is a deliberate deception intended to influence any stage of the procure-to-pay lifecycle in order to make a financial gain or cause a loss. It can be perpetrated by contractors or sub-contractors external to the organization, as well as staff within the organization.

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)