By Khalid Hamid, CIPFA International Director
The story of corruption is as old as man. Perhaps it begins when Adam ate the forbidden fruit, and continues with the big stories of today such as political lobbying for personal gain, cash for honours and the Pandora Papers. Corruption is as every bit as human as, well, humans.
I am not going to advocate for a fundamental change to the human condition. That would be foolish. But I am going argue how we should be closing the gaps which allow corruption and opportunism to happen in the first place.
Around the world, we see how corruption has very real, often devastating, effects on the lives of private citizens. The huge blast at a port in Beirut last year killed more than 200 people and injured thousands – its scale was both horrifying and devastating in equal measure. It was caused by hundreds of metric tons of improperly stored ammonium nitrate, which had been kept there for over six years. Customs officials had sent 14 urgent letters to the authorities since 2014, yet no one took any action. The origin of this mysterious explosive material, or why it was even at the port, is still shrouded in mystery.
The recent fall of Afghanistan made for chilling reading, and videos of the evacuation effort brought gasps of shame and horror. An American intelligence report estimated that the country would fall in six months without continued allied support. It took less than two weeks. So what went so spectacularly wrong?
Allegations of corruption within the Afghan army were well known, with soldiers not being paid or fed, while generals were apparently padding their own pockets. Morale among troops plummeted, so when the fight came knocking, they simply opened the door and stood aside.
Often people in the UK (or other western countries for that matter) see corruption as something which only ever happens in other countries – the developing world, the war-torn and the less fortunate. The places where the notion of law and order is often up for debate and those countries where rulers don't face the results of free and fair elections.
That is not true. Corruption is not a foreign word, and neither should it be a foreign concept. It is rife in the west, yet we like to call it by a slightly more palatable name: fraud.
While no one could ever have planned for the pandemic to cause such disruption, what is certain is that it did create countless opportunities for people to take advantage – and not for all the right reasons. Procurement during the early stages of the pandemic was a challenge, to put it mildly. As the scramble for PPE, ventilators and cleaning supplies caused world-wide shortages, international organisations and governments didn't always stick to the tried, tested and agreed upon procurement pathways.
In March 2020, the UK government issued updated procurement guidance designed to allow the public sector to procure goods, services and works with extreme urgency in the event of an emergency using The Public Contracts Regulations Act 2015. These regulations included the direct use of awards without the usual tender process or any competition.
You could, of course, argue this was wholly justified because the desperately grave situation demanded it. Then again, the combination of desperation and seemingly unlimited flow of cash opens you up to the risk of fraud, corruption and financial mismanagement.
In the months following the emergence of COVID, the government spent around £18bn on contracts awarded through this emergency procurement regulation, in order to buy goods and services quickly. We have all by now read the stories of pandemic procurement going horribly wrong. Perhaps most (in)famously, the government ordered 400,000 gowns from a Turkish manufacturer.
After several delays, the RAF was dispatched, only to bring back a fraction of the original order. If that wasn't bad enough, they were also completely unsuitable for their intended use and ended up in the bin.
A Miami-based jewellery designer also saw a golden opportunity to profit. He was alleged to have paid £21m to a consultant to broker the £250m UK government contract to procure PPE, despite having no experience in this area. The purchasing of 50 million face masks through a company not specialising in PPE, but rather currency trading and offshore property, ended up being completely unsuitable. These are just the big fish that made the headlines. I'm sure there are countless minnows which have yet to surface.
In November of last year, the National Audit Office published findings from an investigation into government procurement throughout the pandemic. While it found that there was sufficient documentation around most contracts in the sample it examined, there were also specific instances of a lack of documentation of key decisions or how conflicts of interest were managed.
The NAO concluded that these errors of judgement had diminished public transparency and that, because of the lack of documentation, it was unable to give assurance that the government sufficiently mitigated the risks around emergency procurement in all cases.
So what does all this mean for fraud?
In times of uncertainty, when supplies are limited, customers are desperate and the cash is flowing freely, people will always spot an opportunity to take advantage. As I say, this is just human nature. We didn't get to the top of the food chain purely by accident. We turned sticks into spears. We took advantage of the planet's resources in ways that other creatures could not. We realised that to win, others must lose. Changing human nature is probably best left for someone with far more time and patience than I. So, if we are never going to stop opportunists, then we must reduce the chances for opportunism.
2020 saw £310m of detected fraud and error in local government alone, with £388m being prevented in the same year (See: Cross-government fraud landscape bulletin 2019-20). This presumably leaves a shortcoming of £77m of fraud which was detected, but not prevented. The total estimated fraud cost to the government, including within the tax and welfare system, is anywhere between a staggering £29.3bn to £52bn per year. Every pound lost to fraud is a one which should have been spent on public services. This means that the loser is always the taxpayer.
Transparency makes it harder to work in the shadows. When transparent decision making is incorporated into the entire process, whether that's procurement or welfare benefits, the risk of fraud declines. It is by far our best defence.
What about the unwitting opportunists?
Corruption is largely based on an organisation's culture. Imagine a boss who only hired his mates, without any formal application, interview process or skills test to see if they could even do the job.
If that culture trickles down from the top, then the example for this new employee has already been set. They will think it's fine to cut corners, to make their own decisions without oversight and see the organisation as nothing more than their playground.
Former UK prime minister David Cameron got into hot water when he used private channels to lobby senior contacts in government on behalf of Greensill, who he was working for as a financial advisor. He and his team sent a total of 45 private emails and WhatsApp messages to people in government in an attempt to persuade them to allow Greensill to join the Corporate COVID Financing Facility. Those lobbied included Chancellor Rishi Sunak, who was sent nine WhatsApp messages, and the top Treasury civil servant Sir Tom Scholar, who received 12 text messages.
A report by the House of Commons Treasury Select Committee said that while no lobbying rules were actually broken, Cameron's actions showed there was a good case for strengthening them. It also said the Treasury should have advised Cameron to use official channels of communication, rather than personal ones.
Even though he didn't break the law, I would argue the former PM still acted in bad faith and used his position of power and impressive contact list to his advantage. You could call this cronyism, or friends just helping each other out, or even a bit of harmless text messaging. I call it corruption.
Corruption can take many guises. Nepotism, fraud, improper competition and lack of transparency are just many shades of the same colour. It can only happen in the shadows, in private text messages and in leveraged relationships between people used for personal gain. It happens when there is money to be made from a crisis, the desperation of people or a window of opportunity opens. It happens when there is a lack of oversight and transparency.
The pandemic has, in many ways, reaffirmed what it is to be human. We are bags of flesh and water vulnerable to disease and infection, dependent on the world and ecosystem of luxuries we have built. But we are also intelligent, scientific and pioneering, having developed a vaccine in a timeframe previously thought impossible.
It has also exposed the gaps in the public sector which allows for corruption to happen, and the opportunity for advantage to be taken. Corners are cut in the belief that the situation justifies it. Out of desperation and need these gaps can widen in the shadows. The wider the gap the more opportunity for opportunists.
While we will never stop people from attempting to take advantage and gain from others' expense, we need to plug the gaps to stop the chance for opportunity to happen.
After all, are we not all opportunists, to some degree? It is only part of being human.
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