Abstract
The news in South Africa is riddled with reports of procurement fraud. The controversial (and as yet unfinalised) arms deal, the R500 million lease agreement when Bheki Cele was the commissioner of police, the Vrede dairy project, the awarding of contracts to the Gupta-managed Tegeta mines, allegations of procurement irregularities put before the Zondo Commission, municipal fraud in the eThekwini Municipality, and the fraud and corruption that arose during the procurement of locomotives by Transnet are all examples of an enormous problem that exists in both private and public organisations. This has been caused by internal controls in the procurement cycle being bypassed or not being applied at all. Procurement fraud occurs in all phases of the procurement cycle but is especially prevalent in the tendering phase. It is not viewed as a business crime, but rather as an administrative irregularity. These unlawful incidents come about due to the absence of internal controls, including a lack of procedures being in place to assess the effectiveness of such controls.
This article is intended to demonstrate that fraud is committed in the procurement cycle when internal controls are sidestepped or when the internal control system in an organisation is ineffective. The authors studied the assessment of internal controls and made recommendations to identify, prevent, and investigate procurement fraud, specifically during the tender phase of the procurement cycle. Venter (2016:38–9) found that most procurement fraud occurs during the tendering phase of the procurement cycle. This is discussed in detail in the article.
Keywords: corruption; fraud; internal controls; misrepresentation; procurement; procurement fraud; procurement cycle; red flags