6 steps for civic monitors to identify fraud risks in procurement in Indonesia

Civic participation can play an important role in monitoring risks in government procurement projects that may lead to uncompetitive practices, wasteful spending and project delays.

In Indonesia, members of the public can file official complaints about suspicious procurement practices. But in order for authorities to investigate the claims, there is a very high burden of proof on the complainant and submissions must include substantive leads or evidence. Tracking down the evidence can also be a difficult and slow process, and it can take years to reach a final outcome.

As many as 90 cases of suspected fraud in public procurement were reported to the National Public Procurement Agency (LKPP) in 2021, according to an analysis by Indonesia Corruption Watch (ICW). Of those, 70 cases were rejected. The following year, 13 out of 33 reported cases were rejected. Many public reports have stalled or been rejected by LKPP because the evidence was considered incomplete, according to ICW Knowledge Management Division Coordinator Wana Alamsyah.

In an effort to improve the success rate of public complaints, ICW has devised a six-step process for identifying potential irregularities in procurement using a data-driven red flagging system and other sources. This method is designed to help civil society, journalists and other members of the public to prepare detailed, factual reports related to suspected violations of procurement rules for further investigation by authorities. 

The research process begins with opentender.net, an analytics tool for identifying fraud risks in procurement that was co-developed by ICW and the National Public Procurement Agency (LKPP). This collaboration has allowed members of civil society and the government to share data, information and resources, with the aim of monitoring contracting procedures, addressing violations promptly and effectively, and even proactively preventing corruption.

Opentender.net provides all information on public procurement at various levels, across more than 600 ministries, institutions and local governments, using data sourced from the official e-government procurement system (known as LPSE).

The six steps are as follows.

1. Identify Procurement Procedures 

The researcher starts by choosing which project to monitor. Opentender.net users can prioritize projects based on a procedure’s risk level – high, medium, and low.

These three risk ratings are calculated using ICW’s Potential Fraud Analysis (PFA) method, which relies on seven indicators:

• Long duration between the tender notice and winner selection date
• Very small or large deviation between contract value and estimated price
• High contract value 
• Tender with a title of fewer than 20 characters 
• Tender with a description of fewer than 60 characters 
• Procurement in the 4th quarter of the year
• Company wins a contract four or more times in a fiscal year

These indicators are based on extensive research on fraud risks in the Indonesian context, although some of them are similar to the indicators used in OCP’s red flags methodology (see table below).

For more tips on monitoring procurement risks, check out OCP’s new red flags guide

2. Review Planning Process

Now it’s time to check the planning stage using information from Indonesia’s procurement planning database, the General Plan Information System (SIRUP). This can be done on either opentender.net or through the sirup.lkpp.go.id website directly.

Ideally, information about planned procurement procedures should be announced in the year before the project begins. For example, if the government decides to conduct a procurement in early 2025, the general plan for the project must have been announced in at least the last quarter of 2024.

«When a project is not in the plans, it automatically violates the law. When carrying out a job without any planning, the justification for the project is unclear,» said Wana. 

Important details to check in the planning stage include the volume of work, project description, specifications, and expected completion date.

3. Identify Similar Procurements 

The third step is to search for similar purchases through opentender.net (or by accessing the official e-procurement platform directly). This step is useful when monitoring construction procurement. If similar construction projects have been carried out multiple times in the same location over a certain period, this is likely to be a sign of violations.

For example, Wana described a case in which a local government auditor identified road works that had been done repeatedly over three consecutive years. In the first year, the local government built a road with square conblock. In the second year, on the same road, there was a similar construction project but using hexagonal conblock. In the third year, the government again carried out a road repair project, this time with asphalt.

4. Review Company Track Record

It’s important to check who owns the winning business to determine whether it’s a shell company or affiliated with a public official, which was the case in several projects reported by ICW. The owner of the company or the largest shareholder can be found in the company deed. In Indonesia, this document can be obtained through the website of the Directorate General of General Legal Administration, Ministry of Law and Human Rights at ahu.go.id (requires registration with ID and a fee).

Opentender.net offers some more accessible company information in the form of company administrator names and a track record of previous procurement procedures won. A company’s procurement track record is needed to evaluate their experience and qualifications in working on a project.

Another platform that can be used to understand a company’s procurement track record is the Provider Performance Information System or SIKaP. This system can be used to assess whether a company meets the qualification requirements set by the buyer. The qualification requirements that must be met will usually appear in the e-procurement system. This requirement will later be attached by the bidder. Companies can pass the administrative stage as long as they have the Indonesian business field standard qualifications (KBLI) which are in accordance with the qualification requirements for the procurement of goods/services.

ICW used this approach to identify alleged fraud in a purchase of curtains for the residence of parliamentarians (see the case study) in 2022. ICW got a tip-off that the procurement process was just a formality, says Wana. ICW checked data about the vendor selection process against data about whether each company met the qualification requirements. There were three bidders but only one company had the requested qualifications.

«We suspect that the award process was carried out as a formality, resulting in unhealthy business competition. We can already conclude which company will eventually win,» said Wana.

Another consideration is whether the company has ever been involved in an investigation or is on the procurement agency’s blacklist. The company blacklist can be seen on the LKPP website, inaproc.id. A company may be blacklisted for one of three reasons: 1) the company does not carry out the work according to the contract; 2) it resigned after being selected as the winner of the tender; or 3) it engaged in bribery to secure a project.

5. Review Project Implementation

This method can only be done for construction works. You can deepen your research using online search techniques, commonly known as open-source intelligence (OSINT), through news reports, Supreme Court decisions, social media, Google Maps, and direct field observations. News articles can be used to trace whether the service provider or the location of the work has ever faced problems. Meanwhile, from the Supreme Court’s decision, you can check whether the company has ever been involved in a criminal or civil case.

6. Analysis 

All the evidence and clues gathered are then refined through analysis to identify possible violations. At this point, it’s worth checking the audit report (LHP) of the Supreme Audit Agency (BPK). This report can be downloaded from the Supreme Audit Agency’s website or obtained by submitting an information request to the Supreme Audit Agency’s Information and Documentation Management Officer (PPID). The audit report may show whether a project involved payment irregularities or administrative violations. Note, however, that not all government projects are audited by the Supreme Audit Agency.

The implementation of the project according to the tender specifications can be evaluated based on three factors. First, whether the winning company completed the work on time in line with the contract specifications. Second, by examining the quality of a project through news reports. For example, there was news about a bridge collapse, even though the structure had only been built six months earlier. Third, analysis based on construction or building specifications. This method is difficult to do because you must obtain contract documents as a basis for analysis and in Indonesia, these documents aren’t disclosed openly. 

You can also check the project’s compliance with legal frameworks, based on four factors. First, procurement regulations that determine the time limit for completing projects (i.e. a company can be said to have committed a violation if it is not on time in completing the work). Second, the anti-monopoly approach or lack of business competition. In some cases, certain companies monopolize a project that is rigged from the procurement planning stage to the process of selecting the winning bidder. Third, the anti-corruption approach is based on allegations of misappropriation, bribery, bribery, conflicts of interest, and extortion. Fourth, analysis through a maladministration approach when project implementation is impacted by improper conduct of a public authority.

Million-dollar curtains

Under the right circumstances, public monitoring reports can have an impact well beyond the initial tender. For example, in 2022, researchers at ICW uncovered what seemed like an unusual purchase by the country’s parliament (DPR). New curtains had been bought for the official residence of parliamentarians at a cost of more than US$2 million (Rp 43.5 billion). 

ICW examined the procurement process behind the deal to understand exactly how it came about. On the website opentender.net, they found the procurement for the curtain project ranked high for potential fraud risks. A total of 49 companies had registered as tender participants, but only three companies submitted bids. Upon further investigation, two of those three companies had been disqualified because they failed to meet an apparently spurious tender specification – they lacked an “interior design business license.”At a time when many Indonesians were experiencing social and economic hardship due to the coronavirus pandemic, the Parliament’s spending was perceived by taxpayers as extravagant and unjustified. Following a public outcry, the curtain project was canceled. Two years later, the Corruption Eradication Commission (KPK) launched a corruption investigation based on other spending on furnishings and equipment at the legislators’ residence totaling more than US$7 million (Rp 120 billion). The investigation remains ongoing.

To see the six monitoring steps applied to a real example, continue on to the case study.

Our work in Indonesia is supported by UNODC, FCDO and the BHP Foundation.