Contracting Processes, Internal Controls, and Procurement Fraud: A Knowledge Assessment. Juanita M. Rendon Rene G. Rendon

Transcription

1 Contracting Processes, Internal Controls, and Procurement Fraud: A Knowledge Assessment Juanita M. Rendon Rene G. Rendon

2 Report Documentation Page Form Approved OMB No Public reporting burden for the collection of information is estimated to average 1 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington VA Respondents should be aware that notwithstanding any other provision of law, no person shall be subject to a penalty for failing to comply with a collection of information if it does not display a currently valid OMB control number. 1. REPORT DATE MAY REPORT TYPE 3. DATES COVERED to TITLE AND SUBTITLE Contracting Processes, Internal Controls, and Procurement Fraud: A Knowledge Assessment 5a. CONTRACT NUMBER 5b. GRANT NUMBER 5c. PROGRAM ELEMENT NUMBER 6. AUTHOR(S) 5d. PROJECT NUMBER 5e. TASK NUMBER 5f. WORK UNIT NUMBER 7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES) Naval Postgraduate School,Monterey,CA, PERFORMING ORGANIZATION REPORT NUMBER 9. SPONSORING/MONITORING AGENCY NAME(S) AND ADDRESS(ES) 10. SPONSOR/MONITOR S ACRONYM(S) 12. DISTRIBUTION/AVAILABILITY STATEMENT Approved for public release; distribution unlimited 11. SPONSOR/MONITOR S REPORT NUMBER(S) 13. SUPPLEMENTARY NOTES Presented at the 12th Annual Acquisition Research Symposium held May 13-14, 2015 in Monterey, CA. 14. ABSTRACT 15. SUBJECT TERMS 16. SECURITY CLASSIFICATION OF: 17. LIMITATION OF ABSTRACT a. REPORT unclassified b. ABSTRACT unclassified c. THIS PAGE unclassified Same as Report (SAR) 18. NUMBER OF PAGES 29 19a. NAME OF RESPONSIBLE PERSON Standard Form 298 (Rev. 8-98) Prescribed by ANSI Std Z39-18

3 Overview Background Theoretical Foundation Research Methodology Research Findings Implications of Research 2

4 Background Department of Defense (DoD) obligated over $300B in FY2013 contracts (GAO, 2014) Deficiencies in DoD contract management result from lack of trained personnel, immature contracting processes, and weak internal controls (DoD, 2009, 2015) DoD contract management deficiencies result in higher level of vulnerability for procurement fraud 3

5 Background The typical organization loses five percent of its revenues to fraud (ACFE, 2013b) DoD contracting workforce is key to deterring procurement fraud Knowledge of the procurement process and internal controls and their relationship to fraud vulnerabilities are critical 4

6 Theoretical Foundation 5

7 Research Methodology Purpose of Research: Assess DoD contracting officers knowledge of contract management processes, internal controls, and procurement fraud schemes. 6

8 Research Methodology 1. What is the contracting workforces knowledge level of procurement fraud as related to contract management processes, internal control components, and procurement fraud scheme categories? 2. What is the contracting workforces perception of procurement fraud as related to the contract management processes, internal control components, and procurement fraud scheme categories? 7

9 Research Methodology Development of web-based assessment tool Knowledge assessment items Organization perception items Deployment of assessment tool U.S. Army Mission Installation Contracting Command 8

10 Assessment Tool Items by Categories Contracting Phase Number of Questions Procurement Fraud Scheme Category Number of Questions Internal Control Component Number of Questions Procurement Planning 5 Collusion 3 Control Environment 3 Solicitation Planning 4 Conflict of Interest 6 Risk Assessment 6 Solicitation 5 Bid Rigging 6 Source Selection 5 Billing/Cost/Pricing Schemes 4 Control Activities Information and Communications 6 4 Contract Administration 5 Fraudulent Purchases 3 Monitoring Activities 7 Contract Closeout 2 Fraudulent Representation Total 26 Total 26 Total 26 4

11 Average Score by Employment Status 100.0% 90.0% Vl % Q) ~ 70.0% c: <t::... u Q)... ' % % u 40.0%... c: Q) u 30.0%... Q) a % 10.0% 0.0% Civilia n Military

12 Average Score by Experience 100.0% 90.0% Vl... Q) 80.0% ~ c: 70.0% ~... u 60.0% Q) u 50.0% ' %... c: Q) u... Q) a % 20.0% 10.0% 0.0% 70.5% 0 to 2 years 3 to 5 years 6 to 10 years 11 to 20 Over 20 years years

13 Average Score by DAWIA Level 100.0% "' 90.0% % OJ ~.. "' < u OJ 70.0% c= 60.9% 60.0% 56.0% ~.. OJ u 50.0% % % c 30.0%... OJ a. 20.0% 67.0% 10.0% 0.0% None Levell Levell I Levell II

14 Average Score by Warrant Status 100.0% 90.0% Vl 80.0%... (1) ~ 70.0% c: <t: tj 60.0% u (1) u... 0 tj c: (1) u... (1) a % 40.0% 30.0% 20.0% 10.0% 0.0% 58.9% Non-warranted 66.8% Warranted

15 Average Score by Contract Management Process 100.0% en L.. Q) 90.0% ~ 80.0% c: <l:: 70.0%... u 60.0% Q) L.. L % 0 u % % c: Q) 20.0% u L.. Q) 10.0% Q.. 0.0% 75.4%

16 (/)... Average Score by Internal Control Component 100.0% Q) 90.0% ~ 80.0% c 65.7% <t: 70.0% +-' I.J 60.0% Q) % u 40.0% ' ' 30.0% c Q) I.J 20.0%... Q) % 0.0%

17 Average Score by Procurement Fraud Scheme 100.0% Vl ~ 90.0% ~ 80.0% ~ 70.0% % u ~ 50.0% % :; 30.0% ~ 20.0% ~ 10.0% ~ 0.0% Q) c..

18 Responses to Contract Management Phase Item Prefer not to ~ answer/ 1% "\. I don't know, 11% Solicitation Planning, 5% I do not suspect fraud, 34% Solicitation, 2% Contract C I oseout, 0% Contract,..,dministration, 13%

19 Responses to Internal Control Component Item I prefer not to \ answer, 2% _\ Control Risk ~:r----- Assessme nt, 8% I don't know, 17% I do not suspect fraud, 38% Information and Commu nication 13% Mon i toring,~%

20 Responses to Procurement Fraud Scheme Item I prefer not to :B:_id~Ri:ggi answer, 2% 'lling/cost/pric ing, 6% Collusion, 10% know, 13% I do not suspect fraud, 53% Fraudulent Purchases, 2% Fraudulent Representation, 0%

21 1. My departmemt has clear lines of authority and responsibility 'S ~"'~ l. StrongJy Agiree Neitl:ter IOi\s.agree Strongly Ag;r,ee Agree Disagree nor 10 i\s.ag,ree I Pref er NottoAn1svt1er: 1 2. My department i,s regula1rly reviewed by int ernal or external auditors )1( ~ 3. L L Stro:ng,ty.Ag,ree Neit h:er IDi\s.ag~ree St rongly Ag;r,ee Agre,e Disagree nor D i\s.ag~ree I Don't Know :9

22 3. I wou~d report fraudulent or suspicious activity if I saw or suspected it ~~ St ro:nglry Ag;r,ee I Do n' t KnoVJ: 1 Agiree Neither IDi:sag~ree Strongliy Agree DisagJee nor ID i:sag~ree 4. I have a clear way of reporting fraudulent or susprcious activirty wiithin my organization outside of my immediate supervi'sor ~~ StrongJy Ag;r,ee I Don' t Know : 3 Neith.er Agree no.r ID i:sag,ree ID i:sag~ree Stmngliy Disagree

23 5. I know who to report to if I saw or suspected fraudulent activities _.Jit~ l. StronglrV Aglree l'r\1 eiither 10 iisag~ree St mogl;y Agr,ee Agree Disagree nor ID iisag~ree I Oon' t Know : 3 6. I have adequate knowledge of cont racting fraud.s<:hemes to perform my dut ies ~ Jllll{ i1.. Strong ~y Agree l'rlleittter IDilsag~r,e;e St rongly Ag,r,ee Agree Disagree I Don't Kn ow :2 nor Disagree

24 7. lln,stances of reportedlsuspededl fra,udulent or susptdous activity have been a,dequate ~y investigated by mry organi1u11tion ~~ Stro:ngty Agiree Neither IDis:agrree Strong! Agr,e.e,Agree Di&agree I Oon' t Know : 37 nor IDisagree 8. Employees in my organizati:on who ar e found to have participat ed in fraudulent acttvities will be subject to appropriate oonseq;uences ~Jil~ Strongly Agiree I Don' t Know: 2.3 Neit her Agree nor Disag1ree IDisagrree Strongly Disagre,e

25 9. My organ iizati'on pllaces sufflc~ent em phas:is on the im porta nee of unt egrnty, eth[r.aj oond llj ct, faurne.s's and honesty mn the~ r d eahngs; Ylirth emplo-vees, vendor.s, and ather o rganirza i'ons ~)l( i. Strong! Agr!'iee Ne_iJttter Dis-agree Strong&y Agree Agree Dbsag1ree I Don.. t Kn ovj: 1 lrlor Dhsagree

26 Implications of Findings Contracting officers may have a knowledge deficiency in the area of procurement internal controls. Contracting officers may be overly-optimistic in selfassessing their knowledge of procurement fraud schemes. Contracting officers limited knowledge of procurement fraud and their perception that their organization is not susceptible to fraud may reveal that the organization could in fact be vulnerable to some form of procurement fraud. 25

27 References Chang, P. W. (2013) Analysis of Contracting Processes, Internal Controls, and Procurement Fraud Schemes, MBA thesis, Naval Postgraduate School, Monterey CA. Rendon, R. G. & Rendon, J. M. (in press). Auditability in public procurement: An analysis of internal controls and fraud vulnerability, International Journal of Procurement Management. 26

28 Questions/Comments Juanita M. Rendon Rene G. Rendon 27

29 Back Up Slides 28

30 Procurement Fraud Matrix Fraud Scheme Category Procurement Planning ~ ~ 0 ~ Solicitation Planning m ~ ~ ~ Solicitation 0 ~ ~ 3 Source Selection -ctl :::J ~ ~ Contract Administration (") 0 :::J C/1 7\ )> C/1 C/1 ctl C/1 C/1 3 ctl :::J - (") 0 :::J - 0 )> (") e: < e: :::J -0 Ill :::J Q. (") r::: :::J (") Ill -0 :::J ;:::;: 0... :::J co Contract Closeout Procurement Process Area 2013 Rene G. Rendon