Combatting fraud and corruption risk in Giga Projects

Megaprojects are projects characterised by large investment commitment, vast complexity (especially in organisational terms) and long-lasting impact on the economy, the environment and society (Brookes and Locatelli, 2015). The Kingdom of Saudi Arabia’s mega projects - or Giga Projects as these are also known - are initiated as an implementation of the ambitious journey of economic diversification through the Vision 2030 transformation agenda. While there is rightfully a surge in optimism relating to the immense growth and development potential, the related challenges cannot be ignored.

Fraudulent schemes in Giga Projects: a global phenomenon

Due to their large scale, complex structures and long timeframes, Giga Projects are susceptible to various fraudulent activities. Giga Projects of national importance are often revolutionary and transformative of the relevant countries. Equally, they can risk manifesting groupthink about the project being above and beyond business-as-usual, meaning that the standard systems and processes which are otherwise required in any new organisation do not apply, as they supposedly hamper innovation.

As the recent scandals in relation to the Giga Projects demonstrate, the officials involved in the abuse of power possessed the authority to design or administer regulations and policies in a discretionary manner. The ‘start-up mentality’ to foster an agile innovative environment in the mega projects often result in weak systems that enable fraud and corruption, benefiting the innovative leaders with discretionary powers. However, statistically, this should not come as a surprise as the Association of Certified Fraud Examiners (ACFE)’s research suggests 87% of the fraudsters have never been convicted of a fraud-related offence.

According to a report by the World Bank, apart from corruption, fraud in large-scale construction projects can range from bid rigging, channel stuffing, phantom bidding and procurement irregularities to invoice manipulation and payroll scams.

Lessons from around the world: specific issues in Giga Projects

A comparative look at other countries' experiences with giga projects shows some patterns from which the Middle East can rightly learn:

• Inadequate procurement processes and controls: The Organisation for Economic Co-operation and Development (OECD) has identified deficiencies in procurement processes as a major vulnerability. Inadequate competition, non-transparent tendering and lack of due diligence are some key red flags. Bid rigging and collusion among bidders is often facilitated due to poor internal controls over procurement procedures
• Complexity and fragmentation: Numerous stakeholders, subcontractors and government agencies add to the complexities which can lead to a lack of oversight and accountability. An unusually complex structure and inadequate internal control mechanisms make detecting and preventing fraudulent activities difficult
• Inadequate anti-fraud programmes and controls: The absence of key internal controls, such as whistle-blower hotlines and fraud risk assessments, hamper the timely identification and reporting of suspicious activity.

World Bank's Warning Signs

As per ACFE research, a typical fraud case can continue for 12 months before being detected. However, governance and oversight authorities in mega projects can keep a keen eye on red flags that indicate fraudulent activity. Procurement, for example, is by far the most vulnerable area in Giga Projects, as outlined in the World Bank publication ‘Warning signs of fraud and corruption in procurement’, which includes key warning signs such as collusive rings, suspicious bidders, Bait and switch, circumventing process by split bid, open purchase order etc.

Safeguarding Saudi Arabia's Giga Projects: a proactive approach

In light of these global challenges and common weaknesses in setting up the necessary guard rails in the name of innovation, the Middle East - and particularly Saudi Arabia - can implement several safeguards to mitigate fraud and corruption risks in their Giga Projects:

• Investing in robust internal controls: As per ACFE Research, more than half of occupational frauds occur due to a lack of internal controls. Implementing a comprehensive anti-fraud programme that includes risk assessments, fraud awareness training for employees and a well-defined whistle blower policy can significantly deter potential fraudsters
• Enhancing transparency and accountability: Mandatory open and competitive bidding processes, along with clear communication channels between stakeholders, can deter fraudulent activities
• Leveraging technology: Using data analytics tools and continuous monitoring systems can help detect anomalies and suspicious patterns in financial transactions and procurement activities. However, the limitations of such analyses should be mitigated and they should not be considered as an alternative to the internal controls as emphasised above
• Collaboration and knowledge sharing: Fostering international cooperation with anti-corruption agencies and learning from the experiences of other countries can provide valuable insights and best practices in managing Giga Projects effectively.

Conclusion

The success of Giga Projects is not guaranteed because of their economic potential so it is essential to ensure ethical and transparent practices throughout their lifecycles. Acknowledgement of the inherent risks of fraud and corruption is vital and a proactive approach for robust safeguards, combined with continuous learning from global experiences, is vital to navigate current and emerging challenges and ensure the successful completion of the ambitious vision.

How can BDO Forensics help?

In the fight against financial crime, our team has a deep understanding of fraud and corruption risks across industry sectors and geographies, together with extensive practical experience in carrying out forensic investigations, anti-bribery and corruption reviews, anti-fraud programmes and control advisory, fraud risk governance consulting and related areas. BDO can help in identifying key fraud risk opportunities and recommend related robust safeguards from our global experience. For any questions around this article - or if you are seeking advice of any sort on the back of an incident, potential issue, whistle-blower complaint or related matter - please feel free to reach out to the BDO experts in your local firm.