Projects such as public housing must be done through open tender to prevent fraud. FILE PIC

MALAYSIAN Malay Contractors Association president Datuk Mokhtar Samad said its members welcomed the government’s commitment and support for open tenders.

The move is considered an improvement because it prevents backdoor deals, which can happen when projects are given through selected tenders or direct negotiations.

But it is shocking when he confirmed that, in the past, 10 “crony companies” would take part in selected tenders, working in cahoots with one another, or in other instances, contracts would be awarded by direct negotiation, and jobs given directly to cronies “with all sorts of reasons being given” to justify the awards.

The goal of the government’s procurement process is to support government programmes by obtaining value for money through acquisition of works, supplies and services. The government’s budget for acquiring goods and services is diverse and huge.

Public contracts are necessary for the provision of transport, electricity, water and communications.

Public sector projects are thus costly and may constitute a high risk for fraudulent procurement.

Last year, the government spent RM220.9 billion on development (assets and services).

Because large amounts of public funds are channelled to the market through public procurement, the procurement process continues to be vulnerable to fraud and corruption.

The Association of Fraud Examiners Report to the Nations 2018 said an organisation loses at least five per cent of its profit due to fraud.

Much of this is through procurement fraud — corruption and asset misappropriation.

The procurement system refers to those processes, procedures, and entities involved in the purchase of goods and services by private or public entities.

The three stages of procurement are pre-solicitation, solicitation and post-solicitation.

Pre-solicitation involves activities related to requirement, planning, research, funding, developing the procurement strategy and solicitation document, and determining contractors.

Collusion between procurement government officers and bidders often happens, such as providing insider information, contractors submitting their own proposals, tailoring specifications and shortening tender periods.

Solicitation includes the competitive bid from contractors or suppliers who can meet the specifications, requirements, needs and price.

This stage concerns the awarding of tenders, issuing work authorisation, assessing work progress and at times conducting site visits. Corruption and abuse of power may take place during site visits.

Post-solicitation includes final amendment to contract, payment and proof of delivery. The bidding process is vulnerable to fraud and can be difficult to detect, especially in large organisations with complex procurement operations.

During pre-solicitation, tender officers have to conduct market and benchmarking of the product or services. It is found that government departments are using only 55 per cent of contracts by E-procurement. The rest is by conventional procurement.

This is where contractors and vendors take advantage of the weak system, including unregistered vendors. The government must make e-procurement for public tenders mandatory. All transmission of requests for participation and submission of tenders must be done through electronic means to prevent fraud.

There are many lapses that may occur during procurement, such as conflict of interest, misuse of power, undue influence in the needs assessment, embezzlement, fraud in bid evaluation and tender manipulation, and bribery of public officials involved in the award process.

Bad politics seemed to have contributed to the deterioration of integrity and good governance. Some corrupt ministers, politicians or senior government officials see this as a goldmine for making easy money, especially relating to expenditure for the public sector.

The government must address the issue of integrity first to overcome corruption. Projects mean money rather than benefit to the people. The higher the price, the better their commissions.

Based on complaints received by the Malaysian Anti-Corruption Commission between 2013 and last year, wrongdoing involving procurement was 42.8 per cent, which topped the list of sectors prone to corruption.

However, the World Bank estimated that 20 to 30 per cent of budget for public contracts is wasted. This finding matches what Tan Sri Ambrin Buang, the former auditor-general and chairman of the new Special Investigative Committee of Administrative Affairs, Procurements and Government Finance, predicted, that up to 30 per cent of Malaysia’s public projects’ value was lost owing to mismanagement and corruption.

The Economic Affairs Ministry confirmed that the lack of transparency is among the reasons that the national debt has increased. To avoid increasing the national debt, the way forward is to award contracts by open tender. It provides an effective way by which companies can tender based on the expertise in their organisations.

Pakatan Harapan had stressed in its election manifesto that open tendering would be used “extensively and transparently”. Transparency and fair competition are important to ensure best results while spending public money.

Contracts, therefore, should be awarded to only qualified, reliable and competent contractors. They should not be awarded to cronies. No more procuring contracts by direct negotiation.

Transparency is the antidote to the disease of corruption. To make public administration more open, transparent and accountable, procurement must follow a tight legal framework to ensure that standards are met and there is quality in the selection process.

Procurement procedures need effective controls to prevent fraud and other irregularities. Continuous monitoring will establish compliance, integrity and ethical standards.

Big data means lots of data is growing every day and becoming a key area of focus for procurement. Many nations are using big data analytics to analyse correlations, uncover patterns of corruption and fraud in public procurement.

The traditional system can store only a small amount of data but with big data large amounts of data that may consist of hundreds of terabytes (equivalent to 1,024 gigabytes) and beyond, the cost of data storage can be reduced and the quality of business intelligence will be improved. This will increase efficiency of procurement decisions.

Fraud and corruption in procurement are common in Malaysia. Our priority must be to reduce this as much as possible and boost the process with strong institutions, adequate controls and safeguards.

We must start now.

 

The writer holds a professional chair in crime and criminology, Institute of Crime & Criminology, HELP University and former immediate Transparency International Malaysia president

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