Preventing Fraud and Corruption in Public Procurement in Croatia: issues and future developments

Renata Šeperić Petak5/14/2014, Zagreb

Summary...• The EU Structural and Cohesion Funds contribute substantially to

public procurement• The violation of the public procurement rules remains one of the main

sources of irregularities and fraud in projects co-financed by Structural Funds

• Enforcement of rules of fair competition and award of contract to the best qualified bidder is still insufficient

• The knowledge of public procurement rules, acquaintance with relevant procedures as well as awareness of the potential violation risks and know-how in handling with irregularities are indispensable for all experts involved in management and control of EU Funds

• With European funding involved, all EU funds managing bodies have to monitor and audit the procurement procedures for EU funded projects and to ensure their compliance with the national and European regulation

• e-Procurement Implementation- significant positive effects in reducing opportunities for corruption and increasing the possibility of transparency

Public procurement contracts (using e-Procurement (https://eojn.nn.hr/Oglasnik/))

Year 2012 2013. January-June

BTC - Below threshold contractsOTP – over threshold procurements

Source: javnanabava.hr

Estimated value

Type of contract

Total Number/Total %

Value/Total %

Number % Value %

BTC works 4.679,00 25,03

6.661.498.134 49,00 17,78 20,03

goods 8.658,00 46,31

5.646.482.565 41,53 32,90 16,98

services 5.358,00 28,66

1.286.855.957 9,47 20,36 3,87

BTC - Total

18.695,00 100,00

13.594.836.656 100,00 71,04 40,89

works

662,00 8,69

4.661.631.478 23,72 2,52 14,02

OTP goods 5.086,00 66,73

8.628.911.940 43,90 19,33 25,95

services 1.874,00 24,59

6.364.949.937 32,38 7,12 19,14

OTP - Total 7.622,00 100,00

19.655.493.355 100,00 28,96 59,11

BTC+OTP

26.317,00 100,00

33.250.330.011 100,00 100,00 100,00

Year 2012

2013. January-June

Estimated value

Total

Number % Value %BTC 8.071,00 81,72 4.642.547.353 40,46OTP 1.806,00 18,28 6.832.126.367 59,54

BTC+OTP 9.877,00 100,00 11.474.673.720 100,00Source: javnanabava.hr

EU funds advance good government

EU funds can considerably increase corruption risks at least two ways:

• One of the most important remaining post-accession levers of Brussels for disciplining new member states is EU funds and the threat of withdrawing them which should, in principle, motivate recipient countries to manage funds well

• The disbursement of EU funds is more heavily regulated, making, in principle, corruption more costly

• Motivations and constraints of corruption are different for EU Structural and Cohesion Funds because monitoring may be more intense and thorough, and because national accountability mechanisms may work in a different way when funding comes from outside

▫ first, by making a large amount of additional public resources available for rent extraction in public procurement;

▫ second, by failing to implement sufficient controls of corruption counter-balancing additional resources for corruption

or

• The common risks regarding implementation of EU Funds:

▫ Public sector officials and others are required to fill many different roles (often simultaneously) that might lead to conflict of interests

▫ No deep traditions of ministerial co-operation, leading the inter-institutional working groups and building ownership

▫ Rather complicated legislation and instructions▫ Weak national strategic framework for the EU SF programming▫ Limited time and human resources to concentrate on

prevention of fraud and corruption (instead of controlling and discovering fraud)

▫ High labour turnover and thus less institutionalized knowledge▫ Often inadequate communication of public information▫ Typical mistakes / fraud cases in public vs private sector are

different▫ Bankruptcy or liquidation of final recipients▫ Failure to maintain proper documentation

Pre-tender stage Post-tender stage

• Corruption risks in this stage of the process are particularly linked to:

the approval of unnecessary, under- or overestimated, low-quality or overly luxurious purchases;

purchases that are not truly needed in the near future;

or goods that would be delivered only once they are no longer required.

• The entire decision-making process should be documented and transparent, e.g., by organizing consultations with the private sector or by making feasibility studies available.

• In practice, corruption risks in the procurement cycle are particularly high once the contract has been awarded.

• Contract specifications or the scope of work are often altered after contract conclusion, and contractors all too often do not perform according to their contractual obligations.

• Due to an understanding between the contractor and a corrupt public official, deviations from what has been agreed to between the parties, such as poor quality or defective performance, may not result in any negative consequences.

Example

•Prices of standardised units ▫If from prices of products, services or works

typically procured with the support of EU Funds, prices per unit can be deducted, and these unit prices differ between procurements of the same authority, between procuring authorities or between regions or Member States, and no other explanation can be found for these price differences, than an explanation might be corruption

Recommendations:• Civil society procurement monitoring• Independent audits and evaluations performed according to EU-wide audit and

evaluation standards• Optimal transparency in the entire public procurement process• e-Procurement platform that contain a model designed for the detection of

corruption• The administrative data on tenders, bidders, projects and contractors are

collected and stored in a structured way, available for controls, investigations and analyses

• Publishing a number of irregular or unacceptable tenders• A structured market analysis and sharing of market intelligence• Proper screening of contractors and beneficiaries, especially their ultimate

beneficiary owners• Corruption risk management that not only focuses on the contractors, but also

on subcontractors and others involved in the proper execution of the contract• Specialised, well-trained public procurement staff who share their expertise

and market intelligence across Member States’ borders• Pre-employment screening and periodical in-employment screening of all

involved in public procurement: public officials as well as temporary staff and external parties hired to facilitate public procurement

• Refocusing the monitoring and control mechanisms from procedural adequacy to effective competition and subtle bid rigging

Thank you for your attention!