Procurement fraud costs public sector £2.3 billion

2 April 2012

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2 April 2012 | Adam Leach

The UK public sector lost £2.3 billion last year to fraudulent purchasing practices such as bid-rigging, price-fixing, the submission of multiple invoices for the same work and diverted payments.

The Annual Fraud Indicator 2012, published by the National Fraud Authority (NFA), found procurement fraud made up the largest proportion of the overall total lost. It cost central government £1.4 billion and local government £890 million. The report cited false and ‘double-invoicing’, price fixing, altering payment details and giving kickbacks to determine contract awards as examples of procurement fraud.

This represents a slight fall on the figure from 2011, which was £2.4 billion, with £1.5 billion lost in central government and £855 million in local government.

Minister for crime and security James Brokenshire said in a statement: “Ripping off the taxpayer will simply not be tolerated. The government’s strategy to reduce fraud is already producing results, this includes ‘Fighting Fraud Together', which allows us to better target, prosecute and prevent fraud.”

In 2011, the NFA worked with CIPS to conduct research into procurement fraud with buyers from the public, private and voluntary sector. The research revealed 9.3 per cent of those surveyed had suffered at least one procurement fraud during the past year. It also found 40.8 per cent believe fraud posed a significant risk to business, and 40.7 per cent said construction projects were most vulnerable. A cause for concern is just 28.7 per cent reported their organisation had undergone a fraud risk measurement exercise.

Although the study provided no estimate on the impact of procurement fraud on the private sector in the UK it found anecdotal evidence to suggest there is a serious problem. Discussing the findings of the CIPS survey, it said: “When the private sector CIPS survey participants were asked to provide an estimate of undetected procurement fraud affecting their organizations, the ‘lowest’ and ‘highest’ averages from the limited number of respondents who were able to offer estimates ranged from 1.8 per cent to 4.9 per cent [of procurement spend].”

The Annual Fraud Indicator is published as part of the Home Office’s anti-fraud initiative Fighting Fraud Together, which aims to raise awareness of the costs to the public sector and advise organisations on how to fight it. The programme includes the establishment of a working group to share data on fraud between the private and public sector.

In January, a report from PwC found the level of fraud carried out by suppliers to the public sector had increased from 13 to 32 per cent in just two years.

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