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Ecuador’s public entities lose $1.5 billion a year to fraud

Published on November 30, 2021

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Of every $100 spent, $25 is lost to fraudulent processes, per year. Public entities plan their hiring poorly and cumbersome processes facilitate irregularities.

In the last five years, an average of $6 billion has been spent on public purchases. However, around $1.5 billion is lost in fraudulent and inefficient processes.

In other words, of every $100 spent, at least $25 ends up destined to favor the negotiation processes, without benefit for the State, in a waste of public resources in a country in constant economic crisis.

This wasted $1.5 billion represents more than twice what is needed to rehabilitate the network of public schools across the country; or to finance 24 times the supplies and medicines that a large hospital like the Carlos Andrade Marín needs.

During the ‘Ecuador Open for Business’ forum, the Minister of Production, Julio José Prado, recognized that fraudulent public purchases add up to these million-dollar amounts; but he said that they are working with the National Public Procurement Service (Sercop) to solve the problem.

However, Rocío Marín, an economist and researcher on public procurement issues, commented that the current government has been filled with speeches and good intentions, although there is no clear route or concrete actions to stop waste and acquire what is really needed.

“The hiring system is cumbersome, impractical and allows multiple loopholes for corruption. The mismanagement on purchases not only means losing money, but also even loss of life in the case of the lack of provision of medicines in hospitals,” he said.

The promises of improvement and more agility in the system have been given since the Government of Rafael Correa, however, the losses continue.

Sercop has not commented on the critical points of corruption and waste that have been detected, and how work is being done to reverse the situation.

Nobody is responsible

During a television interview, the deputy director of Sercop, Luis Alberto Andrade, said that the institution is not responsible for the creation of purchasing processes and it is only limited to comply with what the laws in force say.

According to Andrade, one of the main problems is that the majority of public institutions poorly plan the necessary contracts for each year.

That poor planning opens the door to poor budget execution and waste.

“I want to believe that it is due to inexperience or ineptness. We do not know if there are other issues in addition to this,” he said.

For their part, from ministries, hospitals, companies and public entities, it is argued that contracting mechanisms, including approvals, are slow and figures that facilitate corruption are maintained.

Thus, for example, it is pointed out that the existence of eight stages or steps for purchases is excessive. Even the manager in charge of the Teodoro Maldonado Carbo hospital, Francisco Andino, has pointed out that behind modalities such as the so-called reverse auction, practices such as the same supplier being able to participate through eight companies are concealed.

Marín stressed that to all this is added that, despite the advances in the establishment of open databases for certain types of contracts, most of the system still has gaps that allow indiscretions with little transparency.

Healthcare sector describes chaos in public procurement

Currently, the level of supply of medicines has fallen from 69% to 52% in the entire public health system.

This reality is the direct result of a system without effective controls and where the execution of budgets in some cases does not even reach 20%.

Daniel Rodríguez, general manager of the Carlos Andrade Marín hospital, has said that there are “many tricks” in this entire system.

For example, practices such as the so-called circular delivery have been denounced, where the supplier of medicines or supplies supposedly disburses half of the order in the afternoon, and then on the night of the same day, he takes out the products and the next day he delivers them again, as if he were complying with the entire contract.

These irregularities are also magnified by the lack of technology that makes it possible to effectively track the destination of the inputs that are purchased.

At the beginning of the current government, the Vice President of the Republic, Alfredo Borrero, announced several corrective measures, but there is no information that it is being applied and what its results are.

The complete regularization of the supply of medicines is only offered for March 2022.

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