An analysis of internal controls and procurement fraud deterrence

Abstract

The rise in globalization, coupled with the use of technology to accelerate approval, and payable cycles, the increase of outsourcing of goods and services, and the pressure to cut costs, have resulted in government organizations being more exposed to the risk of fraud in their procurement process. Hence, appropriate internal controls and fraud prevention strategies are necessary for deterring, detecting, and managing procurement fraud. The purpose of this research was to develop a guideline to help government organizations design an effective system of internal controls to deter fraud in public procurement processes and practices. This was done through a review, analysis, and discussion of 20 case studies of actual fraud incidents. In each case study, internal control weaknesses were identified and analyzed in terms of the fundamental principles that are associated with the five internal control components. The analysis revealed that the majority of the organizations in the case studies lacked three internal control components, namely control environment, control activities, and monitoring activities. Recommendations for improvements for each case study were presented by applying relevant internal controls into its procurement process to deter procurement fraud. The areas for further research were also provided.