Procurement corruption fraud at Auckland Council reported by whistleblower

An employee failed to declare a conflict of interest and accepted a bribe to secure stationery contracts worth $140,000 for a supplier who was a long-term associate.

Case information

Auckland Council corruption between two long-term associates

An external supplier paid a bribe to an Auckland Council employee to secure a $140,000 contract to supply USB flash drives.

The council employee was a procurement specialist who managed stationery contracts for the council. The supplier was the director of a printing and office supply company, and a long-term associate of the council employee. The council employee failed to declare his conflict of interest with the supplier.

Corruption of the procurement process

The council employee engaged in numerous corrupt behaviours which enabled the supplier to secure the contract.

These included:

informing the supplier of the council’s intention to purchase a large amount of USB flash drives
assisting the supplier in the procurement process by searching and finding cheap USB rates for him internationally
instructing the supplier to purchase the USBs from an international supplier and sell them onto the council for a profit
intentionally manipulating procurement documentation to make it appear as if the supplier had provided the lowest rate for the USBs.

In return for securing the contract, the supplier paid the official a $7,500 monetary bribe.

Whistleblower prompted the organisation to contact SFO

An internal employee became suspicious after they were contacted by the supplier asking about the process for securing future contracts. The employee consulted the whistleblower policy and informed their direct manager. The matter was escalated to the internal Auckland Council Integrity Team who, upon further investigation, reported the matter to the Serious Fraud Office.

Prosecution outcome

The employee was charged with corruption offences and, following a guilty plea, received 10 months home detention.

Impact of the offending

The council paid $27,000 more for goods which had been offered at a lower rate by another supplier.
The council diverted employee hours and resources to investigating the corruption.
Management indicated that the wider organisation was affected by the offending with employees reporting that they felt undermined by the case.
The supplier gained an unfair competitive advantage. The supplier’s firm made a profit of over $57,000 from the contract.

Organisation’s response

Strong clear messaging was communicated by senior leadership as a deterrent for this type of behaviour. Offenders would be held to account for actions that cause considerable reputational and financial harm to Auckland Council.
Procurement processes use automated systems to support an efficient, consistent and paperless system. Using an automated process prompts individuals to follow a process and creates alerts when actions fall outside of the predetermined process.
Contracts signed by the Council are made public to support a transparent process. The Council will not sign contracts that keep its spending confidential. Instead, it regularly publishes on the Council website the names of all suppliers receiving more than $50,000 in ratepayers’ funds and describes the goods or services provided.
Independent auditors are used for all high-risk and high-value procurement.

Fraudster personas

The corrupt

The council employee misused their position of power to benefit themself through bribes.

The deceiver

By leaving lower quotes out of procurement documentation, the council employee made it appear that the supplier was offering the best deal, and deceived the council.

Red flags

Employee acted outside their scope of duties: his involvement in establishing a new council contract for the USBs was outside his normal course of duties. His role was to maintain the council’s existing supplier relationships.
Unsolicited supplier engagement: the supplier bypassed formal procurement channels by contacting council employees directly to facilitate business.
Non-compliant supplier selection: the contract awarded to supplier outside of an approved list of suppliers.

Effective countermeasures

The case highlights that effective countermeasures such as a whistle blower policy can empower individuals to speak up when they suspect fraud or corruption.
Other effective countermeasures include quality assurance checks to ensure processes are being followed correctly, and audits of contracting processes.

Download the PDF

Whistleblower policy supports investigation into procurement corruption (PDF 285 KB)