A CORPORATE fraud investigation has been launched into seven-figure construction contracts awarded by a Scottish council amid a nationwide crackdown within public bodies after a series of scandals.

Falkirk Council’s own internal auditors have already filed two reports on building work carried out for its housing department, The Herald can reveal.

Now they are understood to be putting the finishing touches to a third document to be presented to senior officials next week.

The council is just the latest to scrutinise its procurement systems after a series of scandals elsewhere in the Central Belt. There is growing awareness across Scotland of the vulnerabilities of public contracts to unethical, improper or criminal behaviours.

Sources in the local authority said that Police Scotland had not been informed of the investigation, which is at a relatively early stage and follows whistleblowing disclosures.

A Falkirk spokesman said: “The council has a whistleblowing policy in place along with other measures to allow concerns to be raised with the council’s corporate fraud team directly or anonymously.

“Any allegation of fraud is taken seriously and investigated by our own corporate fraud team. Such investigations can lead to a range of outcomes including making improvements can be made to processes or controls or in more serious cases, triggering of the council’s disciplinary policy or referral to Police Scotland.”

It is nearly four years since The Herald published the findings of an internal audit investigation in to alleged “corruption” at North Lanarkshire Council. That document - which, in an unusual step, used the C-word - focused on £20m worth of business given to private contractors.

But it also began a process under which councils across Scotland looked more carefully at how they procure building work and other goods and services.

A year ago Audit Scotland, the public sector spending watchdog, published a guide of procurement ‘red flags”, warning signs of corruption or wrongdoing in public contracts.

Audit Scotland, writing with the help of Police Scotland, stressed the dangers of collusion between procurers and bidders.

It warned of conflict of interests - where officials give contracts to family or friends. But it also underlined the dangers of “inappropriate gifts” - and how officials can be compromised slowly.

In its document, Audit Scotland, set out examples “of where things have or could go wrong”.

One of these examples cited a procurement officer it called John who had “developed a good relationship with a particular company involved in several contracts related to construction”.

It added: “He indulges in gifts and hospitality, which was fairly low level at the start but over several years has increased to a point where he now depends on his ‘perks’.

“John starts to look upon the company favourably and often designs the tender specification in a way that benefits the company. Without realising it, John is committing a bribery offence at the expense of the public purse.”

Dishonest bidders can also dupe procurers, Audit Scotland warns. This can include collusion between bidders - where all bids are high, where bids are withdrawn or even fictional.

Sometimes procurement officials can be in on this game, including giving favoured bidders information, or allowing late bids.

In one of its illustrative stories, Audit Scotland describes an example of collusion.

It said: Numerous bidders acted together during the procurement process for a large engineering contract in the public sector and worked collaboratively to submit bids that favoured a particular company. Some bids were exceptionally low, some withdrew their bids and some were content to wait until the next time round to submit a bid. Some of the losing bidders were used as sub-contractors, so they did benefit in some way.”

However, there are also red flags to watch out for once a bid has been accepted. Audit Scotland warns of the tell-tale signs that a contract is being abused, especially for the delivery of services.

There are questions that need to be asked about how contracts are going, it said. Are there checks on whether that work has been done to required standards? Are there penalties for poor performance?

This could reveal what auditors call ‘fraudulent variation of contract”. That is when a supplier bids unrealistically low then makes up its losses with trucks like duplicate invoices or substandard work.

Audit Scotland, by way of illustration, gives an account of such a fraud.

It wrote: “A roofing company submitted an attractive low bid for a council’s lucrative roofing repairs contract, with the full intention of submitting further multiple variations during the contract term to compensate for the initial low bid.

“The contract was awarded and the roofing company targeted the contracts manager with excessive gifts and hospitality.

“This led to the manager feeling indebted to the roofing company and inclined to return the favour through manipulating contract variations. Knowing his authorisation level was £50,000, the contracts manager split a quote for £250,000 into five separate bids to avoid supervisory-level authorisation.

“Tactics also included duplicate fraudulent invoices and inferior product substitution, which resulted in a poor service and greater health and safety risks, all at the added expense to the public purse.”

Audit Scotland warns of what it calls pre-tender contract splitting . This is where junior officials - who are authorised to make small purchases, typically up to £50,000 - break up big deals in to small packages to avoid scrutiny.

Across the UK, procurement fraud is thought to run in to hundreds of billions. It is the job of council auditors - supported by Audit Scotland - to save money and protect services, not pursue those guilty of crime or behaviour that, while not criminal, is nevertheless questionable.

However, some fraud does lead to convictions, including of a former head of leisure at Falkirk Council who paid fake invoices made from his mother-in-law’s address.