Understanding the Fraud Risks in Green Public Procurement

When Tom Caulfield, CFE, CIG, CIGI, was commissioned to write a report on how to prepare a public procurement anti-corruption strategy for green public procurement, he initially didn’t know what green public procurement (GPP) was. His research revealed that, while the Basel Institute on Governance claims the term “green corruption,” there’s no universal definition of what green corruption entails. Thinking at first it involved mainly water and air pollution, he discovered that a more accurate definition is any corrupt or fraudulent act occurring in the procurement process that impacts the environment.

As concern for crimes that impact the environment has grown, governments’ interest in procuring green goods has increased the need for GPP. Caulfield emphasizes that in order to advance GPP, environmental criteria need to be applied at each stage of the procurement process. Many countries have developed tools and standardized environmental criteria, including eco-labeling and life-cycle costing (LCC).

However, there are fraud risks to these procurement criteria. “All government procurement processes are vulnerable to traditional schemes,” says Caulfield, and GPP is no exception.

There are some unique qualities to the most predominant corruption and fraud schemes. This includes schemes involving counterfeit parts. Manufacturing is difficult, and people often don’t understand how to verify it. Another scheme is fake eco-labeling. Since there is an increased dependency on eco-labeling, this incentivizes people to fabricate it. There’s also a vulnerability to greenwashing, which is an advertising trick companies use to give the impression that a product is environmentally friendly without stating the full truth. For example, they may state that a product has no impact on the environment while in use but fail to mention the impact the manufacturing of it has.

Caulfield states that the overall goal is to have honest, fair and impartial procurement integrity. While there are multiple ways that traditional schemes can be conducted, every scheme can be understood to manipulate the selection (supplier of goods or services), cost (what the buyer pays for the goods or services) and quality. We can combat GPP fraud by verifying the credibility of certification programs to authenticate eco-labels, conduct due diligence of a company’s eco-friendly background and monitor and evaluate green performance.