Fraud 

is essentially the practice of dishonesty and manipulation as a means of acquir
ing unjust gains.Seeing as fraud encompasses a wide variety of types and forms,
focus shall be situated around fraud against Public and private companies.

Cressey (1953) suggests that the specifying characteristics of fraud are;

If handled incorrectly,
fraud could hamper economic growth and cost billions of dollars to
governments and companies as PricewaterhouseCoopers Global Economic Crime and
Fraud Survey in 2020 reports estimated losses of about 42 billion dollars due to fraud.
Throughout the last 20 years, countering fraud incidents was conducted in an inefficient
manner by both the government and the private sector. That being said, a cohesive approach
is required to establish efficient means of preventing fraud as well as detecting its
perpetrators.

Case study 1: Malaysia

In  2013, Malaysia  was  identified  as one  of  the  most  corrupt  countries  in  the
region(Ernst  and  Young), and it ranked 50 on the corruption perception index.Fraud in the
Malaysian public sector involves several scandals such as discovering in 2012 that many of
the deceased were receiving social welfare benefits. Moreover, Some Public
officials have utilized government funds for their own luxury and benefit (ex: reporting
a travelling expense to cost much higher than expected).Najib  Razak, Malaysia’s
former prime minister, was supposedly involved in the theft of 4.5
billion $ from the state development fund.

Governmental Fraud in Malaysia also manifests in political parties receiving “donation”
from corporations and individuals, as Malaysia’s ruling party has a
huge amount of funds. The funding company or individual can then exploit their power to
perform illegal actions without getting punished. They can also create
political lobbies for their interests and use it to gain more profit or beat competition (tax cuts-
establishing governmental protection for a company).As  for  the  reasons  behind  fraud,  A
study  conducted  in  2006  questioned  the heads of the internal audit department for 36 State
and Local Government agencies. The results concluded that the major perceived causes
of fraud are poor management practices, economic pressures and weakened society values.
Other  causes  for  fraud  were mentioned including political affiliations, advancement in
computer equipment,  High  workload  and  inefficient  methods  of  detecting  fraud.
Different  types  of  fraud  were  perceived  to  be  rampant  such  as  misallocation  of  fund,
incorrect  claims  of  overtime,  false  documentation  and  account  manipulation.
The process of detecting this phenomenon has occurred mostly through internal audit
reviews, while other methods like employee notification and accidental discovery
coming in second place.
As  for  the  private  sector,  Fraud  has  become  an   alarming and giant problem  in
Malaysia(According  to Malaysian Anti-Corruption Commission and
 PricewaterhouseCoopers and Fraud Survey respectively), as billions of dollars
have been lost due to this phenomenon. Chief of MACC noted that “as someone in the line of
fighting corruption for a long time, it is at a stage that worries me personally. But it is not yet
a pandemic.”
On June 11 2020, the Malaysian Anti-Corruption Commission interviewed three company
directors as it had intel that they were involved in fraud
regarding a tourism contract with Chinese companies. The  
intel had said that the contract was done in one day and
it did not abide by the regulation set in Malaysia.
The former chairman of one of the aforementioned companies had also
been previously found guilty of fraud by the commission.
The  types  of  fraud  occurring  in  the  private  sector  range  from  manipulating  bids  and
utilizing  bribery  as  a  mean  of  obtaining  contracts,  to  asset  misallocation  and  financial
statement  fraud.
The legal penalty for fraud may vary depending on the type of
crime and the passage of the penal code utilized to convict the criminal,
As section 17A(2) for the corruption offence specifies that the criminal shall be fined
ten times or more the value for gratification, or serve a jail sentence of 20 years or less. A
modification  to  this  section  was  added  in  2018,  allowing  the  investigation  and
punishment  of  fraud  in  the  private  sector(prior  to  2018, this  section  only  permitted  the
investigation  of  public  sector  fraud).
Moreover,  the  Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful
Activities Act set  in  2001  punishes  the  criminal  with  no  more  than  15  years  in  prison
and a  fine  of five  times  or  more  the  sum  of  the  proceeds  of  the  crime.
Section  17(A)  was  enforced  by  the  government  where  a  company (Pristine Offshore
Sdn Bhd) was  detained  and  had  to  pay  a  fine  of  79,000$,  after  using  bribery  to
secure  an  oil  subcontract  with  Malaysia’s  state  owned  oil  and  gas  company.
That  being  said,  fraud  in  Malaysian  organization  persist  as  PWC’s  notes  that  it
continues  at  a “worrying  level”. The  threat  of rise  in  fraud  and  an increase  losses  is
also  possible  as  economic  crime  rose  from  2018  to  2020.
Case study 2: United Kingdom
While the Crime Survey of England and Wales announced that there
were about 3.4 million incidents of fraud in 2016-17, the  real  number may  be  orders  of
magnitude  higher  as  only  a  tiny  fraction  of  fraud  incidents  are  thought  to  have  been
reported. In  2017,  The  annual  fraud  indicator  estimated  losses  in  the  united  kingdom
due  to  fraud  to  be  around £40 billion  in  the  public  sector,  £140 billion  in  the  private
sector  and  £7 billion  for  individuals. Moreover,  the  eminent  covid-19  crisis  has  cost
the  UK  government  £4.6 billion  due  to  cases  of  fraud  and  error,  as  speed took
precedence  over  anti-corruption procedures in order to weather the pandemic. For  instance,
grant  fraud  increased  significantly  in  the  UK after   the   covid-19   pandemic (It   had  
previously   been   almost  negligible  at  0.3 percent  of  fraud  cases  in  the  public
sector) as  the  governments gave  several  grants  for  local  authorities  to  distribute.
Alternatively,  cases  of  utilizing  unlawful  means  to  obtain  a  contract  have  been
estimated  to  cost  the  British  people  around  £2.4 billion a year  even  before  the
pandemic. In  2009,  The  office  of  fair  trading  fined  103  construction  firms  in  England
after  discovering  that  they  had  worked  together  to  mislead  the  client(National  Health
Service  in  this  case)  regarding  a  specific  contract. Fraud  in  the  aforementioned  case
was  done  through  agreement  between  these  103  companies  to  bid  artificially  high
prices  so  as to  set  a  fake  level  of  competition  and  discourage  the  client  from  bringing
cheaper  bids. The  OFT  also  discovered  several  cases  of  bribery  where  successful
bidders  had  paid  unsuccessful  ones as  compensation  for  intentionally  losing  the  bid.
Steve Taylor, the   former head of the Economic Crime Unit at West Yorkshire Police said:
“The British don’t do bribery? We invented it in the age of Empire and taught it to the
world.”

Procurement   Fraud  cases  with  the  NHS  had  also  occurred  in  the  1990’s  when  the
prices  of  several  generic  drugs  experienced  a  rapid  rise. The  NHS  consequently
accused  seven  drug  manufacturing  companies  of  agreeing  with  each  other  to
set artificially high prices for the aforementioned drugs. Although none of these
companies has been detained, a whistleblower claims he attended secret
meetings between the suppliers. Corruption also  exists  inside  the  NHS  as it  was
discovered  that  an  engineer  at  the  service  agreed  with  a  supplier  to  place  fake  orders
in  return  for  receiving  free  supplies  from  the  latter. The  NHS  then  estimated  the  false
orders  to  have  cost  around  £80,000,  and  the  engineer  received  2.5  years  of
imprisonment. A similar incident of fraud occurred in the finance team of a
governmental department when a senior member of the team created 8 invoices for a fake-
supplier and paid 5 of them.After being notified by the bank, the department
discovered that the fraudulent individual had diverted £246,000 to his personal bank account.
As demonstrated by the following figure, the major sites of losses due to fraud in the UK
are known,
Which should theoretically make combating this phenomenon easier.

That  being  said,  the  amount  reported  as  detected  fraud  are  the  tip  of  the  iceberg  as
the  real  number  is  estimated  to  have  been  tens  of  billions  of  pounds  higher. Tax
evasion  has  also  been  a  problem  in  the  UK  as  it  prides  itself  on  being  a  global
financial  center,  but  is  yet  to  take  any  useful  action  in  combating  this  phenomenon. In
2016 the then prime minister warned, ‘If you’re an accountant, a financial adviser or a
middleman who helps people to avoid what they owe to society, we’re coming after you too’
  The  government  has  not  been  sleeping  on  the  eminent  threat  caused  by  fraud  as  it
has  invested  in  the  Counter Fraud Centre of Expertise  leading  to  a  growth  in  its
members  from  four  to  forty  counter  fraud  specialists  in  2020.Moreover,  the   Taskforce
on Fraud, Error and Debt  was  created  in  2010  to  serve  as the  best  team  of  professional
fraud  detectors  from  both  the  public  and  private  sector. The  taskforce  also  took  upon
itself  to  test  and  study  the  efficiency  of  different  methods  in  combating  fraud
(example:  utilizing  behavioral  science  to  better  and  track  fraud  perpetrators).
The  Cabinet  also  created  a  network  of  counter  fraud  champions  in  2011,  in  order  to
help  fortify  the  fight  against  fraud  and  support  the  taskforce. Another
governmental agency that is interested in detecting fraud is the efficiency and
reform group, created by the minister for the cabinet office in May 2011.This
group is tasked with the reduction of waste spending which makes fraud one of its
main fields of investigation as it is a major contributor to wasteful
governmental expenditures. That being said, these efforts have
been somewhat beneficial, as the cases of detected fraud in   the   public   sector  
have increased by 51% in the years 2019-20.

As  for  the  private  sector,  It  has  had  its  fair  experience  with  fraud  and  corruption. For
instance,  the  director  of  a  commercial  interior  firm  used  bribery  in  2018  to  obtain
secret  information  from  an  insider  and  utilized  this  intel to  win  a  £6m  or  more
contact. Moreover, medical supplier companies in 2017 paid a procurement expert
(in the field of medical supplies) £1.7m in
corrupt payment, in order to get assistance in winning specific bids. Another field rampant
with corruption is construction, as the different level of sub contraction and the  need
for different permits make this field vulnerable to fraud.In a survery conducted
by the Chartered institute of Building, almost half of the field
professional believe that corruption is common in the construction field.
10 percent of the surveyed professionals estimate that the loss in the field due to
corruption is about at least £1m a year. When the reasons behind corruption were inspected,
25% of the surveyed individuals consider cultural confusion
(regarding what constitutes corruption) as a major cause of fraud.
Another cause of corruption in the field, based on a quarter of the
surveyed individuals, is economic pressures felt by workers due
to lacking means of subsistence (low wages). Oliver Bullough, author of “Moneyland: Why
Thieves And Crooks Now Rule The World And How To Take It Back”, said:
“Bad behavior and incompetence are not the only explanations for corruption. There is
another – when something is so beneficial for a sufficiently large and powerful minority that
it’s in their collective interests to keep it a secret.”
The penalty for  fraud  and  corruption  in  the  UK  is  mainly  regulated  by  the  anti-bribery
act,  which  initiated  into  action  in  2001.The  aforementioned  act  defines  the  bribery
vaguely,  which  allows  it  to  encompass bribery  between  individuals,  bribery  between
companies  and  bribery  of  public  officials. Individuals  or  companies  found  guilty  of
bribery  can  receive  a  sentence  of  ten  years  in  prison  and /or  a  specified  fine. One  of
the  companies  under trial for  bribery  is  Serco  Geographix  Ltd ,  as  it  was  accused  of
three  offences  of  fraud,  two  offences  of  false  accounting  and  had  to  agree  with  the
Ministry  of  justice  for  a  £70million  civil  settlement.  Furthermore, in 2017, F.H.  Bertling
ltd., a transportation company with a branch  in  Angola,  was
convicted of making corrupt payments to an insider  in  the  Angolan  state oil company.
Upon further investigation, many individuals in F.H. Bertling were
imprisoned for periods ranging from 3-5 years.
Problems in mitigating fraud
To begin with, in order to understand procurement fraud and detect, A clear awareness and
understanding of the process is required, as procurement fraud is complex and diverse in
nature. Assessing the fraud combating agencies in the public and private sector, it is evident
that there exists a lack of thorough understanding of procurement fraud, which it turn creates
an environment that fosters this kind of corruption.
Moreover, the strategy of combating fraud based on investigation, prosecution and sanction,
has proven to be expensive, timely and usually does not result in the recovery of the losses.
Another big problem in the UK and several other countries is the lack of funding and
sufficient resources to counter fraud agencies. In the era of neoliberal austerity, many of the
aforementioned counter fraud agencies have been subject to budget cuts (example: the serious
fraud office in the UK had its budget reduced in 2009 from £51.5 million to £43.4
million)which in turn increase the possibility of bribery inside these agencies due to
economic pressures.
Recommendations
Essentially the government should work on the creation and delivery of procurement fraud
training courses for specialists tasked with detecting this type of corruption.
Sir Philip Green, a British businessman, also suggested that government should utilize its
high purchasing power to conduct procurements as a single identity. If there exists some
problems in the aforementioned suggestion, single-entity procurement can be done only in
sectors where high levels of fraud have been detected. The other sectors should require
central approval and management by a central authority, only if they exceed a specified
amount of money.
Transparency is also a prominent method to allow different independent faction to investigate
losses incurred by the government. Corruption and bribery are further encouraged by the lack
of transparency where merely bribing government officials can do the trick. Increasing
transparency also improves the democratic process and allows the masses to punish
government officials who fostered corruption on their watch and failed to prevent it. Data
analytics aided by technology should also be regularly conducted in the public and private
sector to detect the possible presence of corrupt insiders.
Moreover, Fraud risk assessment should be conducted on all major projects, through hiring an
independent panel of fraud experts to play an advisory role.
This process can be conducted through assessing the history of the bidding companies and
previous corruption scandals it had been involved in.
Furthermore, cooperation between governments should be fostered as a means of detecting
mitigating corruption, especially in the private sector. Suspicions of fraud should also be
reported to different governments in order to improve Fraud risk assessment and decrease
corruption all over the world.
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