CONTRACT AND PROCUREMENT FRAUD PAST PAPERS WITH ANSWERS

QUESTION 1 : Which of the following is a red flag of a procurement fraud scheme in which vendors are colluding to circumvent the competitive bidding process?

Qualified contractors do not submit bids
The winning bidder subcontracts work to losing bidders
Some bids do not meet the requirements of the solicitation documents
All of the above

Common red flags of procurement fraud schemes involving collusion among contractors include: The industry has limited competition. The same contractors bid on each project or product. The winning bid appears too high. All contractors submit consistently high bids. Qualified contractors do not submit bids. The winning bidder subcontracts work to one or more losing bidders or to non-bidders. Bids appear to be complementary bids by companies unqualified to perform the work. Some bids fail to conform to the essential requirements of the solicitation documents (i.e., some bids do not comply with bid specifications). Some losing bids were poorly prepared. Fewer competitors than usual submit bids on a project or product. When a new contractor enters the competition, the bid prices begin to fall. There is a rotational pattern to winning bidders (e.g., geographical, customer, job, or type of work). There is evidence of collusion in the bids (e.g., bidders make the same mathematical or spelling errors; bids are prepared using the same typeface, handwriting, stationery, or envelope; or competitors submit identical bids). There is a pattern where the last party to bid wins the contract. There are patterns of conduct by bidders or their employees that suggest the possibility of collusion (e.g., competitors regularly socialize, hold meetings, visit each other’s offices, or subcontract with each other).

QUESTION 2 : High percentages of returns, missing compliance certificates, and evidence of falsified test inspection results are red flags of which of the following procurement fraud scenarios?

A contractor delivering goods or services that do not conform to the contract specifications
Two or more competing contractors agreeing to refrain from bidding
A procuring employee manipulating the bidding process to benefit a favored contractor
A contractor charging the procuring entity for labor costs that are not allowable

Nonconforming goods or services fraud, also known as product substitution or failure to meet contract specifications, refers to attempts by contractors to deliver goods or services to the procuring entity that do not conform to the underlying contract specifications. Once contractors deliver goods that do not conform to the contract, they bill and receive payment for conforming goods or services without informing the purchaser of the deficiency. The following is a list of potential red flags for nonconforming schemes: High percentage of returns for noncompliance with specifications Missing, altered, or modified product compliance certificate Compliance certificates signed by employees with no quality assurance responsibilities Materials testing done by supplier, using the supplier’s own personnel and facilities Evidence that test or inspection results were falsified (e.g., documents appear altered or modified, test documents are illegible, signatures on documents are illegible, documents were signed by unqualified or inappropriate personnel, or test reports are similar or identical to sample descriptions and test results) Highest profit product lines have the highest number of material return authorizations or reshipments Discrepancy between product’s description or normal appearance and actual appearance (e.g., a new product appears to be used) Used, surplus, or reworked parts are delivered Delivery of products that appear counterfeit (e.g., product packaging, appearance, and description do not appear genuine; items that are consistently defaced in the same area; items that appear different from each other) Offers by contractors to select the sample and prepare it for testing Delivery of look-alike goods Unusually high number of early replacements Contractor restricts or avoids inspections of goods or services upon delivery

QUESTION 3 : A contractor who delivers materials of lesser quality than specified in the contract or uses a lower quality staff than specified in the contract might be involved in which of the following types of procurement fraud schemes?

Nonconforming goods or services fraud
Labor mischarging fraud
Material mischarging fraud
Product division fraud

QUESTION 4 : Which of the following is NOT a common red flag of a bid tailoring scheme?

Competitive awards vary among several suppliers.
Only a few bidders respond to bid requests.
There are unusually broad specifications for the type of goods or services being procured.
A contract is not rebid even though fewer than the minimum number of bids are received.

Bid tailoring schemes (also known as specifications schemes) occur during the presolicitation phase. In these schemes, an employee with procurement responsibilities, often in collusion with a contractor, drafts bid specifications in a way that gives an unfair advantage to a certain contractor. Some common red flags of bid tailoring include: Weak controls over the bidding process Only one or a few bidders respond to bid requests Contract is not rebid even though fewer than the minimum number of bids are received Similarity between specifications and the winning contractor’s product or services Bid specifications and statements of work are tailored to fit the products or capabilities of a single contractor Unusual or unreasonably narrow or broad specifications for the type of goods or services being procured Requests for bid submissions do not provide clear bid submission information (e.g., no clear time, place, or manner of submitting bids) Unexplained changes in contract specifications from previous proposals or similar items High number of competitive awards to one supplier Socialization or personal contacts among contracting personnel and bidders Specifications developed by or in consultation with a contractor who is permitted to compete in the procurement High number of change orders for one supplier

QUESTION 5 : Which of the following is NOT an appropriate technique for detecting a nonconforming goods or services scheme?

Review the contractor’s statements, claims, invoices, and supporting documents.
Review correspondence and contract files for indications of noncompliance.
Segregate and identify the source of the suspect goods or materials.
Review the number of qualified bidders who submitted proposals.

Nonconforming goods or services fraud , also known as product substitution or failure to meet contract specifications , refers to attempts by contractors to deliver goods or services to the procuring entity that do not conform to the underlying contract specifications. Once contractors deliver goods that do not conform to the contract, they bill and receive payment for conforming goods or services without informing the purchaser of the deficiency. To detect nonconforming schemes, the fraud examiner should, at a minimum, examine the following for red flags: Contract or purchase order specifications Contractor’s statements, claims, invoices, and supporting documents Received product Test and inspection results for the relevant period, searching for discrepancies between tests and inspection results and contract specifications Additionally, to detect nonconforming schemes, the fraud examiner should: Review correspondence and contract files for indications of noncompliance. Request assistance from outside technical personnel to conduct after-the-fact tests. Inspect or test questioned goods or materials by examining packaging, appearance, and description to determine if the items are appropriate. Segregate and identify the source of the suspect goods or materials. Review inspection reports to determine whether the work performed and materials used in a project were inspected and considered acceptable. Review the contractor’s books, payroll, and expense records to see if they incurred necessary costs to comply with contract specifications. Review the inspection and testing reports of questioned goods or materials. Conduct routine and unannounced inspections and tests of questioned goods or materials. Examine the contractor’s books and manufacturing or purchase records for additional evidence, looking for discrepancies between claimed and actual costs, contractors, etc. Interview procurement personnel about the presence of any red flags or other indications of noncompliance. Search and review external records (e.g., court records, prior complaints, audit reports, investigative reports, media sources) to determine if there is any history of misconduct.

QUESTION 6 : Which of the following is NOT a common red flag of procurement fraud schemes involving collusion among contractors?

Bid prices begin to fall when a new competitor enters the competition.
There is limited competition within the industry.
The same contractors bid on each project or product.
More competitors than usual submit bids on a project or product.

QUESTION 7 : Which of the following activities is included in the bid evaluation and award phase of procurements involving open and free competition?

The procuring employees issue the solicitation document.
The procuring employees perform their contractual obligations.
The procuring employees develop the bid specifications.
The procuring employees assess the bids or proposals.

In the bid evaluation and award phase, the procuring employees evaluate the bids or proposals, conduct discussions and negotiations, and give the bidders an opportunity to revise their proposals. Procuring employees then select the winning bid or proposal.

QUESTION 8 : Which of the following practices is a potential indicator of a bid splitting scheme?

Low employee turnover in an organization’s procurement department
Two or more purchases from the same supplier in amounts just above competitive bidding limits
Sequential purchases under the competitive bidding limits that are followed by change orders
Frequent use of sole-source procurement contracts

In general, procuring entities must use competitive methods for projects over a certain amount. To avoid this requirement, a dishonest employee might break up a large project into several small projects that fall below the mandatory bidding level and award some or all of the component jobs to a contractor with whom the employee is Some common red flags of bid splitting schemes include: Two or more similar or identical procurements from the same supplier in amounts just under upper-level review or competitive-bidding limits Two or more consecutive related procurements from the same contractor that fall just below the competitive-bidding or upper-level review limits Unjustified split purchases that fall under the competitive-bidding or upper-level review limits Sequential purchases just under the upper-level review or competitive-bidding limits Sequential purchases under the upper-level review or competitive-bidding limits that are followed by change orders

QUESTION 9 : Which of the following is NOT one of the key phases of procurement processes that employ competitive bidding mechanisms?

The solicitation phase
The presolicitation phase
The post-award and administration phase
The purchase and procurement phase

For the purpose of fraud detection, procurement processes that employ competitive bidding mechanisms can be reduced to four basic stages: The presolicitation phase The solicitation phase The bid evaluation and award phase The post-award and administration phase

QUESTION 10 : Which of the following is a common way a procuring employee might engage in a bid manipulation scheme?

Altering bids
Opening bids prematurely
Extending bid opening dates without justification
All of the above

In bid manipulation schemes, a procuring employee manipulates the bidding process to benefit a favored contractor or supplier. Some common ways to commit these schemes include: Opening bids prematurely Altering bids Extending bid opening dates without justification

QUESTION 11 : Which of the following types of procurement fraud schemes involves procurement employees who convince their employer, the procuring entity, that it needs excessive or unnecessary products or services?

Need recognition schemes
Bid tailoring schemes
Bid manipulation schemes
Nonconforming goods schemes

QUESTION 12 : ABC Paving and XYZ Asphalt are the only two companies in Greenwood County that lay asphalt. An audit reveals that the government is paying more for asphalt work in Greenwood County than in other counties in the region. A review of the records reveals that of the last ten asphalt contracts awarded in Greenwood County, five have gone to ABC and five have gone to XYZ. Which of the following procurement fraud schemes is most likely occurring?

Bid rotation
Need recognition
Defective pricing
Product substitution

Based on the facts provided, ABC Paving and XYZ Asphalt could be engaged in a bid rotation (or bid pooling) scheme, which is a form of collusion among contractors. Bid rotation occurs when two or more contractors conspire to alternate the business among themselves on a rotating basis. Instead of engaging in competitive contracting, the bidders exchange information on contract solicitations to guarantee that each contractor will win a share of the purchasing entity’s business and potentially enable them to charge inflated prices for their contracts.

QUESTION 13 : Which of the following is a method by which contractors can inflate material costs in negotiated contracts?

Estimating costs based on valid cost allocation methods
Failing to disclose discounts and credits
Obtaining materials at stated prices from third parties
Disclosing residual inventory

QUESTION 14 : Which of the following activities is included in the post-award and administration phase of procurements involving open and free competition?

The procuring entity issues the solicitation document.
The procuring entity evaluates the bids or proposals.
The procuring entity performs its contractual obligations.
The procuring entity develops the bid specifications.

During the post-award and administration phase, the contracting parties fulfill their respective duties through the performance of their contractual obligations. Activities that occur during this phase include contract modifications (i.e., change orders); review of completed portions and release of monies; and assessment of deliverables for compliance with the contract terms, including quality control.

QUESTION 15 : Which of the following is a way that dishonest contractors collude to circumvent the competitive bidding process?

Submit invoices for work that was not performed or materials that were not delivered.
Submit token bids that are not serious attempts to win the contract.
Use obscure publications to publish bid solicitations.
Submit bids that are competitive in price.

Schemes involving collusion among contractors seek to circumvent the competitive bidding process. In these schemes, competitors in the same market collude to defeat competition or to inflate the prices of goods and services Complementary bidding (also known as protective , shadow , or cover bidding ) is a common form of collusion between competitors, and it occurs when competitors submit token bids that are not serious attempts to win the contract.

QUESTION 16 : All of the following activities are included in the presolicitation phase of procurements involving open and free competition EXCEPT:

The procuring entity develops the bid specifications.
The procuring entity determines the method for acquiring the goods or services.
The procuring entity issues the solicitation document.
The procuring entity identifies its needs.

In the presolicitation phase, the procuring entity identifies its needs, develops the bid specifications (what, how much, and how good), determines the method to use for acquiring the goods or services, and develops the criteria used to Bid specifications are a list of elements, measurements, materials, characteristics, required functions, and other specific information detailing the goods and services that a procuring entity needs from a contractor. The procuring entity issues the solicitation document in the solicitation phase of the procurement process.

QUESTION 17 : The solicitation phase of procurements involving open and free competition includes which of the following activities?

The prospective contractors prepare and submit their bids.
The procuring entity identifies its needs and develops the criteria used to award the contract.
The procuring entity determines the method for acquiring the goods or services.
The procuring entity performs its contractual obligations.

The solicitation phase involves the bid solicitation, bid preparation, and bid submission. During this phase, the procuring entity prepares the solicitation document, provides notices of solicitation, and issues the solicitation document.

QUESTION 18 : Which of the following is NOT an appropriate technique for detecting a nonconforming goods or services scheme?

Determine if contract costs have exceeded or are expected to exceed the contract value.
Conduct unannounced inspections of questioned goods or materials.
Review the inspection and testing reports of questioned goods or materials.
Interview procurement personnel about the presence of any red flags.

Nonconforming goods or services fraud , also known as product substitution or failure to meet contract specifications , refers to attempts by contractors to deliver goods or services to the procuring entity that do not conform to the underlying contract specifications. Once contractors deliver goods that do not conform to the contract, they bill and receive payment for conforming goods or services without informing the purchaser of the deficiency. To detect nonconforming schemes, the fraud examiner should, at a minimum, examine the following for red flags: Contract or purchase order specifications Contractor’s statements, claims, invoices, and supporting documents Received product Test and inspection results for the relevant period, searching for discrepancies between tests and inspection results and contract specifications Additionally, to detect nonconforming schemes, the fraud examiner should: Review correspondence and contract files for indications of noncompliance. Request assistance from outside technical personnel to conduct after-the-fact tests. Inspect or test questioned goods or materials by examining packaging, appearance, and description to determine if the items are appropriate. Segregate and identify the source of the suspect goods or materials. Review inspection reports to determine whether the work performed and materials used in a project were inspected and considered acceptable. Review the contractor’s books, payroll, and expense records to see if they incurred necessary costs to comply with contract specifications. Review the inspection and testing reports of questioned goods or materials. Conduct routine and unannounced inspections and tests of questioned goods or materials. Examine the contractor’s books and manufacturing or purchase records for additional evidence, looking for discrepancies between claimed and actual costs, contractors, etc. Interview procurement personnel about the presence of any red flags or other indications of noncompliance. Search and review external records (e.g., court records, prior complaints, audit reports, investigative reports, media sources) to determine if there is any history of misconduct

QUESTION 19 : Which of the following is a method by which contractors can inflate labor costs in negotiated contracts?

Subcontract to affiliated companies at inflated rates.
Use higher-wage personnel to perform work at lower rates.
Account for learning-curve cost reductions.
Use valid cost schedules.

QUESTION 20 : Which of the following is NOT a red flag that might indicate the existence of a need recognition scheme?

The purchasing entity has large numbers of surplus items written off as scrap.
The purchasing entity has unusually high requirements for stock and inventory levels.
The purchasing entity does not have a satisfactory list of backup suppliers.
The purchasing entity’s materials are being ordered at the optimal reorder point.

Generally, procurement actions begin with the procuring entity making a determination of its general needs. These initial determinations include assessments of the types and amounts of goods or services required to meet the entity’s needs. In need recognition schemes, procurement employees convince their employer that it needs There are several red flags that might indicate a need recognition scheme. An organization with unusually high requirements for stock and inventory levels might reveal a situation in which a corrupt employee is seeking to justify unnecessary purchases from a certain supplier. Likewise, if an organization’s materials are not being ordered at the optimal reorder point, this should raise a red flag. An employee might also justify unnecessary purchases of inventory by writing off large numbers of surplus items as scrap. As these items leave the inventory, they open up spaces to justify additional purchases. Another indicator of a need recognition scheme is a need that is defined in a way that can only be met by a certain supplier or contractor.

QUESTION 21 : Which of the following is a common red flag of a defective pricing procurement fraud scheme?

A contractor uses valid cost schedules.
A contractor delivers products that appear to be counterfeit.
A contractor’s cost estimates are inconsistent with its prices.
A contractor submits a request for change orders.

Defective pricing arises when contractors intentionally use inaccurate cost or pricing data to inflate costs in negotiated contracts (i.e., the contracting method that permits negotiations between the procuring entity and prospective contractors). A contractor can use various defective pricing schemes to increase the cost of the contract and thereby its profits, but, generally, defective pricing schemes involve inflated labor costs or inflated material costs. The following are general red flags that relate directly to defective pricing schemes: Contractor provides inadequate, inaccurate, or incomplete documentation to support cost proposals. Contractor is late in providing, delays providing, or cannot provide supporting cost or pricing data. Contractor’s cost estimates are inconsistent with its prices (i.e., discrepancy between quoted prices and actual prices). Contractor uses out-of-date pricing information (e.g., outdated cost schedules) in cost proposals. Contractor fails to update cost or pricing data when past activity showed that costs or prices have decreased. Contractor fails to disclose internal documents on discounts, rebates, and so on. Contractor fails to disclose information regarding significant cost issues that reduce proposal costs. Contractor uses vendors or subcontractors during contract performance that are different from the ones named in the proposal or contract. Materials, supplies, or components that the contractor used in production are different than those listed in the proposal or contract. Contractor delays releasing information that could result in price reductions. There is evidence of falsifications or alterations of documentation used to support cost calculations. Contractor has unrealistically high profit margins on completed work. Contractor fails to correct known system deficiencies that lead to defective pricing. Unqualified personnel developed cost or pricing data used in contractor’s estimating process.

QUESTION 22 : Which of the following is a way that dishonest contractors collude to circumvent the competitive bidding process?

Alternate business among themselves on a rotating basis
Refrain from submitting bids on certain contracts
Agree to stay out of each other’s designated markets
All of the above

Schemes involving collusion among contractors seek to circumvent the competitive bidding process. In these schemes, competitors in the same market collude to defeat competition or to inflate the prices of goods and services The following schemes are common forms of collusion between competitors: Bid rotation: Bid rotation , also known as bid pooling , occurs when two or more contractors conspire to alternate the business among themselves on a rotating basis. Bid suppression: Bid suppression occurs when two or more contractors enter into an illegal agreement whereby at least one of the conspirators refrains from bidding or withdraws a previously submitted bid. Market division: Market division (or market allocation ) schemes involve agreements among competitors to divide and allocate markets and to refrain from competing in each other’s designated portion of the market.

QUESTION 23 : Roger, a CFE, is an auditor for the government’s Office of Audit and Evaluation. While conducting a routine audit of ten construction contracts from the Public Works Department, Roger notices some unusual characteristics in the contracts’ bidding documents. The contracts were all awarded to the same contractor, and the specifications in all ten contracts had unreasonably narrow specifications for the types of goods being procured. Which of the following types of procurement fraud schemes is most likely at issue here?

A procurement employee has intentionally included unallowable costs in the projects’ contracts and budgets.
A procurement employee broke up a large project into several small projects that fall below the mandatory bidding level.
A procurement employee has drafted bid specifications in a way that gives an unfair advantage to a certain contractor.
A procurement employee convinced his employer that it needs excessive or unnecessary products or services.

QUESTION 24 : AD&N Railway solicits bids to lay several miles of new railroad track. Bob, who works for AD&N, writes the specifications for the project to provide that AD&N will only contract with companies that have more than 25 years of experience. Bob knows that only B&P Track Co., one of the prospective bidders, has more than 25 years of experience. What type of procurement fraud scheme has taken place?

Bid suppression
Bid alteration
Bid tailoring
Bid division

Bid tailoring schemes (also known as specifications schemes) occur during the presolicitation phase. In these schemes, an employee with procurement responsibilities, often in collusion with a contractor, drafts bid specifications in a way that gives an unfair advantage to a certain contractor. Bid specifications are a list of elements, measurements, materials, characteristics, required functions, and other specific information detailing the goods and services that a procuring entity needs from a contractor. Specifications assist prospective contractors in the bidding process, informing them of what they are required to do and providing a firm basis for making bids, and they provide procurement officials with a firm basis for selecting bids. There are three primary methods used to commit bid tailoring schemes. One method involves drafting narrow specifications. In these schemes, a corrupt employee tailors the bid specifications to accommodate a vendor’s capabilities and to eliminate other competitors so that the favored contractor is effectively guaranteed to win the contract. For instance, the tailored bid might require potential contractors to have a certain percentage of female or minority ownership. Such a requirement is not illegal, but if it is placed in the specifications as a result of a bribe, then A second method involves drafting broad specifications. In these schemes, a corrupt employee of the buyer designs unduly broad qualification standards to qualify an otherwise unqualified contractor. A third method involves drafting vague specifications. In these schemes, the buyer’s personnel and the contractor collude to write vague specifications or intentionally omit bid specifications. This enables subsequent contract amendments, allowing the contractor to raise the contract’s price

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Written by MJ