Spotting the Ghosts: Using Big Data to Detect Fraud in Government Purchases

Public procurement is about how governments buy goods and services using taxpayer money. It's important because using this money wisely can help build trust and support social development. Unfortunately, the process can be tricky and is often prone to fraud, wasting a lot of money. A study by the University of Craiova, Romania, Institute of Financial Studies, Bucharest, Romania, and three other universities examined how big data and online systems can help make public procurement more transparent and fair.

Spotting Fraud with Big Data: Romania's 2023 Public Procurement Under the Microscope

The study focuses on Romania's public procurement system in 2023. In Romania, the government used an online system called the Electronic System for Public Procurement (ESPP) to buy goods and services directly. In 2023, they made 2.25 million purchases, spending around 3.22 billion euros. The researchers gathered data from these transactions, totaling over 112 million data points, to understand how money was spent and to spot any unusual patterns.

The researchers were particularly interested in "exclusive" relationships, where a vendor only works with one public entity. They found that about 14.28 percent of all public purchases fell into this category. These exclusive deals can indicate problems like favoritism or fraud because they don't follow the usual rules of fair competition.

The Role of Online Systems in Preventing Procurement Fraud

Public procurement should be about getting the best value for money. However, fraud is a big issue in this area. Governments have started using online systems to make the process more transparent. These systems allow the public to see how money is spent and help prevent fraud by making everything more open. In Europe, countries are encouraged to use electronic methods for public procurement, which helps achieve sustainable development goals by promoting accountability and transparency.

When researchers have access to data, they can use various methods to spot fraud. Some look for unusual transaction values, while others use advanced data science techniques. They also study the human side of fraud, understanding why people commit it, such as pressure, opportunity, and rationalization.

Exclusive Deals and Red Flags: What the Data Revealed

The Romanian ESPP system should work like a competitive market where many sellers compete for business. However the study found that many purchases were made through exclusive relationships, which could indicate fraud. Using special software, the researchers analyzed all the transactions from 2023, looking for these exclusive deals.

They found that 93,723 transactions, worth about 2.28 billion RON, involved vendors who only worked with one public entity. This means a significant amount of money was spent in a way that might not be fair or economical. These transactions represented a large portion of the total value of purchases made through ESPP.

The study also looked at the geographical distribution of these exclusive transactions. They found that many of these deals happened in specific regions, suggesting that certain areas might have higher risks of fraud.

Additionally, the researchers identified several risk factors associated with these exclusive transactions. For example, they found that many of these deals were completed very quickly, often within minutes of being posted. This is unusual because it doesn't give other vendors a fair chance to compete. Other risk factors included transactions happening at odd hours or on weekends, which can be a sign of shady dealings.

Interestingly, the financial data of the vendors involved in these exclusive transactions often didn't match up with their activity. Normally, you'd expect successful vendors to show strong financial results, but this wasn't always the case with these exclusive vendors.

A Call for Accountability: Investigating Public Procurement Practices

The study concludes that public procurement involving exclusive relationships is riskier and needs careful investigation by authorities. These findings are important because they show how big data and online systems can help uncover potential fraud and improve the fairness of public procurement.

The study reveals that a significant portion of public procurement in Romania involves exclusive relationships, which can lead to fraud and inefficiency. By using big data and online systems, researchers can spot these issues and help ensure that taxpayer money is spent wisely and fairly. This research is a step toward making public procurement more transparent and accountable, benefiting society as a whole.