After reading this chapter, you will be able to:
- Recognize the warning signs of bribery and corruption, and identify critical items to examine for evidence of bribery and corruption.
- Understand procedures that may help prevent bribery and corruption schemes.
From the book:
By comparison [to asset misappropriation schemes], bribery and corruption schemes occur far less frequently, with 31% of fraud schemes including this element. Yet these schemes are far more costly on a per-incident basis, with a median cost of $538,000 per fraud.3 Such schemes include the use of one’s position or power to influence a transaction, and more specifically these schemes could involve bribery, kickbacks, or conflicts of interest.
The most common bribery and corruption schemes include:
- Bribery – Giving or receiving something of value to influence a transaction
- Illegal Gratuity – Giving or receiving something of value after a transaction is completed, in acknowledgment of some influence over the transaction
- Extortion – Demanding a sum of money (or goods) with a threat of harm (physical or business) if demands are not met
- Conflict of Interest – Employee has an economic or personal interest in a transaction
- Kickback – A vendor give part of an overbilling to a person who helped facilitate or allow the transaction.
- Corporate Espionage – Theft of trade secrets, theft of intellectual property, or copyright piracy
On-books versus off-books schemes:
Off-books schemes are many times impossible to detect. By ‘‘offbooks,’’ we mean transactions that don’t have anything reflected on the books of the company. If there is no documentation that a transaction occurred to begin with, it’s extremely difficult to detect.
However, the continued expansion of electronic transactions has had an interesting effect on fraud. Some may believe that the use of computers and electronic transfers has made fraud easier to commit, but in fact it often creates more of a “paper trail” of activity than a perpetrator may realize. An employee who previously may have received a cash bribe may now receive an electronic transfer of funds. There’s no physical check to follow through the banking system, but the electronic transfer has certainly created a trail leading from the person who paid the bribe to the person who received it.
Fraud schemes involving transactions already on the books run a greater risk of discovery. Since we at least know that a transaction exists, the fraud investigator has a starting point for an investigation. That doesn’t mean the details of an impropriety will necessarily be found, but the chances of discovery are greater because the investigator has at least a small bit of information about a transaction and its participants.