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Fraud and corruption probe called for after National Audit Office Report into the procurement of COVID-19 supplies

Posted on 3 December 2020

The National Audit Office (NAO), the UK's independent public spending watchdog, have published a report expressing concern about the use of the Government's emergency powers to procure contracts to supply personal protective equipment (PPE) and other COVID-19 related supplies. By 31 July 2020 over 8,600 contracts had been awarded, with a value of £18 billion. PPE accounted for 6,900 contracts, which was 80% of the total number, with a value of £12.3 billion. This represented 68% of the total value of contracts awarded.

The Cabinet Office controls spending for all Government contracts worth over £10m. Before giving approval, it is supposed to assess the commercial rationale for the procurement. However, due to the need to react quickly in a highly competitive market in the early stages of the pandemic the Cabinet Office decided not to apply this control to the supply of PPE contracts. Instead, a cross-Governmental PPE team was established which put in place an eight stage process to assess offers to supply PPE. The Cabinet Office, with the Department of Health and Social Care, also established a clearance board to approve any PPE contracts worth more than £5m.

In its report, the NAO concluded that in a number of cases there was an inadequate audit trail of the procurement process and that departments had "failed to document fully the consideration and management of risks, such as the justification for using emergency procurement, why particular suppliers were chosen, or how any potential conflicts of interest had been identified and managed". In addition, in a number of instances contracts were awarded retrospectively, after the supply of goods/services had already begun.

The NAO report included case studies looking into two companies in greater detail who were awarded PPE contracts worth £350m and £253m by the Department of Health and Social Care despite inadequacies with its due diligence checks. The masks supplied by both were not in line with the Government's PPE specifications. Due diligence carried out on one company, which employed a Board of Trade official to act for the company in the bidding process, failed to identify a potential conflict of interest. Due diligence was only carried out retrospectively on the second company two months after the award of the original contract. The Department of Health operated a 'traffic light' approach to categorising risk, against which the due diligence report into the second company categorised the company as 'amber'.

The NAO's report is likely to be of interest to the Serious Fraud Office (SFO) and the National Crime Agency (NCA), as, while the report makes no finding of misconduct in respect of the tender process for either company, the report only represents the review of a sample of 20 contracts out of the total of just over 8,500. We may yet see investigations and prosecutions for Fraud Act or Bribery Act offences if it appears, for example, that anyone involved in the procurement process misrepresented their position, or offered, or provided incentives that assisted companies with their proposals to supply PPE.

A previous NAO report into prison service providers G4S and Serco in 2013 prompted the SFO to open investigations in 2013 and 2014 respectively. These investigations led to deferred prosecution agreements and settlements worth £19.2 million with Serco in 2019 and £44.5 million with G4S in 2020. Five individuals have also been charged with fraud offences in connection with these investigations, and their trials are due to commence in January 2021.

It is clear from the NAO's report that a review of the remaining 8,580 contracts is highly likely and could provide fertile ground for the investigative agencies. This is just one of many areas for potential investigations by different government bodies relating to COVID-19. Indeed, many expect HMRC in particular to focus on investigations and enforcement actions in relation to the deliberate misuse of the Government relief schemes introduced during the pandemic.

This will be a regular theme in the months and years ahead as the SFO, the NCA, and HMRC try to recover potentially billions of pounds from those who have abused Government schemes.

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