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How a Kazakh IT team helps save billions of budget funds

At the end of 2021, the Kazakh company Datanomix, specializing in risk analysis in public procurement, became the winner of the international World Commerce & Contracting Innovation & Excellence Awards.

The project, developed by Datanomix for the Internal Government Audit Committee of the Ministry of Finance of the Republic of Kazakhstan, took two first places in the Operational Improvements category - in the EMEA region and global, beating out such competitors as Shell and the UK Public Procurement Service.

A few months earlier, Datanomix became the winner of an international hackathon aimed at creating IT tools based on public procurement databases. The hackathon was initiated by the Open Contracting Partnership (OCP), an international organization working to bring transparency to public procurement through innovative collaborations between governments, businesses, civil society and technology professionals.

“We, as an international platform, see our task in analyzing the best practices around the world. The market of IT products for monitoring public procurement is developing quite actively, and we help in their implementation if we see an initiative on the part of government agencies,” explains Vladimir Tarnay, OCP Manager for Eastern Europe and Central Asia.

“The concept of our company is aimed at increasing the efficiency and competitiveness of public procurement, at bringing them out of a non-competitive field into a competitive one, which ultimately allows the state to save a lot of money,” explains the founder and CEO of Datanomix, 36-year-old resident of the capital, Vitaliy Trenkenshu.

Questions of linguistics

Vitaly became interested in programming in the 10th grade, at the same time he began to attend a scientific circle at the Eurasian National University. The head of the circle in the early 2000s was engaged in the computerization of the Kazakh language, studied neural networks even before it became a trend, and a capable student became interested in these topics. Vitaly entered the ENU (Eurasian National University) on a grant in 2003, then graduated with a master's degree in Computer Science, defended his master's thesis in neural networks and, after studying artificial intelligence science, decided to start his own business.

However, Vitaliy took his first steps in business back in his student years. In the fourth year, he, together with classmates, began to develop a Russian-Kazakh and Kazakh-Russian translator. The project won a NIF$50K Innovative Business Plan Competition grant, and under the terms of the award, the winners were required to found a company, sending money to finalize it. This is how the Keremet IT company appeared.

“At that time, we had the largest vocabulary base. We hired proofreaders, typesetters, and paid a team of Ukrainian developers. However, it soon became clear that the students were able to develop a promising project, but did not have a very good idea of ​​​​how to build a business: we spent the grant in the first year, but didn’t create a ready-to-use product,” says the interlocutor.

By that time, the young man worked as a subcontractor for companies involved in tenders and public procurement. He invested additional earnings in the translator, but by the time it was ready, the start-up entrepreneurs realized that they had lost - an experienced competitor had entered the market, to whom Vitaly and his colleagues eventually sold their product. After that, a side line of business related to the development of state systems to order came to the fore.

“At first, we worked as a subcontractor for large companies, then self-confidence came and we started working as the first number. The first orders came from the Agency for Combating Economic and Corruption Crime (financial police), then our team, like a relay baton, was transferred from one government agency to another. This is understandable: the market is small, people change jobs, and besides us, there were practically no other teams involved in identifying corruption risks based on data and having good expertise in this area. Professional investigators and operatives knew what to do, but they worked with old methods. We, as IT specialists, had the opportunity to look at the problem from a different angle, for example, we understood the value of government databases,” Vitaly explains.

Without leaving the office

One of the first Keremet IT projects in the field of public procurement to identify risky payments was commissioned by the Information and Analytical Department of the Financial Police in 2010-2011. After analyzing the databases of the treasury, tax authorities, information on debts and bankruptcies, IT specialists identified cases where state orders were received by bankrupt companies or, for example, enterprises that had tax arrears. Criminal cases were initiated on the facts of violations, in two years, according to the results of inspections carried out on the basis of materials generated by the IT system, it was possible to accrue additional 11 billion tenge. According to Vitaly, this case was the first proof that corruption crimes can be solved without leaving the office, if the attention of operational staff is focused correctly.

In 2013–2014, a new team came to the leadership of the Agency for Combating Economic and Corruption Crime, over time evaluating the possibilities of using IT in solving corruption crimes. A Situation Center was created at the agency. According to the interlocutor, it was a very promising project in which several companies participated.

“We collected about fifty databases, on the basis of which we calculated hundreds of risks, helped initiate several hundred criminal cases and return billions of tenge to the budget. Many cases were identified when companies through which billions of dollars were transferred registered, for example, for people without a fixed place of residence. Analysis of the database of family ties helped to identify cases where tenders were given to relatives. We were preparing to “roll out” the data to several knees, but it turned out that everything is much simpler in the regions - it is not uncommon for the akim’s wife’s company to win the tender,” recalls Vitaly.

After the dissolution of financial police, the Keremet IT team got a new customer - the Economic Investigation Service of the Ministry of Finance. So, analysts focused on identifying economic crimes - facts of tax evasion, front companies. In 2017-2018, in cooperation with the General Prosecutor's Office, the IT team implemented the OKO project, the task of which was to identify the risks of economic and corruption crimes in the field of public procurement.

Vitaly's team developed a methodology for analyzing public procurement data; it contained more than 40 risks covering all stages, from procurement planning to payment to the supplier. In 2017, analysts identified 37 corruption schemes for a total damage of 55 billion tenge, and in 2018, 32 pre-trial proceedings were initiated.

Work on warning

Vitaly founded his own project - Datanomix - in 2019. According to him, the decision was dictated by the desire to separate the data analysis business into an independent company.

“The main focus of Keremet IT's activities was still not related to analytics, but to the development of databases for information systems of government agencies. A few years ago, I did not see any serious prospects in this direction, and in recent years the market has been monopolized, and it has become increasingly difficult to work. I believed much more in Qlik, the platform for automating analytics and reporting, on the basis of which Datanomix works today,” the interlocutor explains.

His former business partner decided to continue what he started, so as a result he headed Keremet IT, and Vitaly took over the leadership of Datanomix.

In the first year of its activity, Datanomix surpassed Keremet IT in terms of turnover, and then over the next two years, the company grew by 100% annually. Today, Datanomix employs 15 people, by the end of 2022 the company has signed contracts for more than 1 billion tenge, more than 40 analytics contracts are in progress. According to Vitaliy, the emphasis of the project concept is shifted from punishing an already committed crime to improving the efficiency of public procurement and identifying the risks of overpriced purchases from a single source at an early stage. For example, the price of a medical mask when purchased in a competitive way is 10 tenge, and when purchased from a single source - 15. If we are talking about tens of millions of pieces, then by bringing public procurement into a competitive field, you can significantly save public funds.

“Our system is a symbiosis of a person and a computer, it shows risks, the so-called red flags, draws the attention of inspectors to them, but does not label them, because often the cause of violations is not malicious intent, but the human factor - a mistake, inattention or elementary laziness" Vitaly says.

Over $1M has been invested in Datanomix since its inception, including money from project work the team has done for clients. Connecting customers costs 30–80 million tenge, depending on the scope of work. Datanomix does not sell software to the customer, but rents it out, that is, it works as SaaS, which allows you to preserve and develop intellectual property, improve methods and developments.

“We update the chips common to all customers almost every month, but some structures have confidential data, some do not have access to certain databases by law, so the principle of information security is in the first place for us. The data does not leave the customer's servers, but there is a public part that assesses risks based on open data. This is enough to understand what assets a particular company has and cut off fly-by-night companies,” Vitaly explains.

According to him, one of the most serious challenges is related to the need to overcome conservatism on the part of state bodies representatives. But in any structure, there are usually people who are ready to support a progressive idea, and after them the initiative is picked up by colleagues who were previously skeptical about data analysis.

Since last year, Datanomix has been actively working with public organizations, although earlier, Vitaly admits, he was skeptical about such cooperation. Now it has become obvious that working with NGOs helps to identify "blank spots".

“Working out some risks remains outside the coverage area of ​​state structures, since it is not within the scope of their powers,” says Vitaly. – On the other hand, public organizations may pay attention to these risks and even initiate the adoption of systemic measures to discourage other violators. So, the public is an important part of our history. We work with two groups - risk management and investigative journalism. Each of the groups is assigned our consultants who train users, and we hope that cooperation with the public will bring good results.”

The willingness of Datanomix to cooperate with public organizations was also appreciated by the OCP. The international organization, says Vladimir Tarnay, is holding a public procurement school in Central Asia, and a team of enthusiasts who are interested in this topic already unites 70 people, including employees of the Academy of Public Administration.

“For them, this is a good opportunity to gain new knowledge in order to introduce it into the educational process later. Cooperation between business and educational institutions will help convey to officials the idea that the correct collection and use of data ensures the effective use of budget funds, and this ultimately determines the quality of products and services that citizens use,” Tarnay is sure. In Mariupol, for example, he says, by changing the approach to public procurement, they managed to save about $40 million.

Last year, Vitaly says, the system was bought by Kazakh private investors, whose plans include further development of the project. In particular, the Datanomix team will work on creating a center for monitoring and analyzing public procurement. According to the interlocutor, as a result of attracting investors, the project for the first time had the opportunity to hire professional buyers with experience working on the customer’s side, which allows more accurate risk management, improved algorithms, improved feedback, and less dependence on the customer.

As part of its corporate social responsibility, this year Datanomix, in collaboration with Qlik and the Open Contracting Partnership, plans to develop a public analytics module that businesses, governments, civil society organizations and academia can use free of charge to transform public procurement information into better decisions.

With the light hand of OCP, the Ministry of Finance of Azerbaijan showed interest in the Kazakhstani project, it is planned to sign a contract. At home, Datanomix signed a contract with the «Samruk-Kazyna» holding. According to the founder of the project, the problem of risk assessment in procurement is relevant not only for the state, but also for private companies.

“I see two directions for Datanomix development. On the one hand, we can replicate our experience in public procurement to other countries, on the other hand, we see that private companies are purchasing similar solutions, which means that there is a market for our product,” says Vitaly.

Source: Forbes Kazakhstan