Report on shadow economy and public procurement: combating corruption requires good public procurement competence

Public procurement is unfortunately often accompanied by various shadow economy practices, such as corruption and cartels. The report Shadow Economy and Public Procurement, being published today, collects together means by which such misconduct can be combated. The report coordinated by the Ministry of the Justice is part of the Action Plan against the Shadow Economy and Economic Crime drawn up for 2016–2020.

The large volume of public procurement alone is enough to make combating shadow economy practices related to such procurement important. In Finland, the public funds being used for the procurement of goods and services amount to approximately EUR 30-35 billion per annum, or roughly one-fifth of the GDP.

The Finnish Competition and Consumer Authority (FCCA) was involved in drawing up the report on the ways by which the shadow economy could be fought against in public procurement. According to the working group’s estimate, one of the most efficient methods would be enhancing the competence of the organisations doing procurement and the staff conducting internal audits by giving them training in the risks of the shadow economy practices. Developing the professionalism in procurement would also reduce the opportunities for deliberate malfeasance. In addition, procurement units would need codes of ethics regarding public procurement.

Shadow economy can also be combated by increasing the transparency and monitoring of the use of public funds. The working group proposes enacting a law that would oblige all local authorities to arrange internal auditing as part of their internal supervision. Currently, only part of local governments uses internal auditing.

The working group also recommends that public procurement units introduce a register of contracts. In addition, procurement units and organisations using public funds should have channels through which they could anonymously report shadow economy, and unethical and illegal practices and incidents.

The risk of corruption may also be increased by the shared interests of decision-makers and persons in positions of trust in the public sector and the companies providing services and products, as well as the double role of officials making procurement decisions. If an official holding a decision-making position in local government acts as a person in charge of a municipally owned subsidiary, it may lead to a situation where the state or municipal official supervises his or her own actions. In conflict of interest situations, this would compromise the impartiality in the processing of the matter. Therefore, the working group recommends that local governments ensure that no double roles are created.

The report also highlights that, currently, the operations of the public administration conducted in the corporate form lack sufficient openness, supervision and regulation of the use of public funds in some respects. Accordingly, to prevent potential misconduct in the use of public funds, a separate report should be made on the activities related to the corporatisation of public operations.

The working group also proposes improvements to the accessibility of data concerning public procurement and suppliers. To enable investigation of any suspected cases of misconduct, it is important that data is effectively and comprehensively available to the relevant authorities. The report also makes suggestions on ways to reduce the administrative burden caused by the examination of the exclusion criteria of suppliers.

The Shadow Economy and Public Procurement report (in Finnish)

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Further information:

Antti Norkela, Head of Cartel Investigation, tel. +358 29 505 3345