Corporate Bribery & Corruption Risk

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By Stephen Hipkin

Stephen Hipkin

What are Bribery and Corruption?

Bribery and corruption are expressions often banded about, but what are their true meanings?

Transparency International defines both as follows:

  • Bribery – “money or favour given or promised in order to influence the judgement or conduct of a person in a position of trust.”
  • Corruption – “involves behaviour on the part of officials in the public sector, whether politicians or civil servants, in which they improperly and unlawfully enrich themselves, or those close to them, by the misuse of the public power entrusted to them.”

More broadly, bribery and corruption can also include those activities such as theft, embezzlement and false accounting.

Impacts

Bribery and corruption are by their nature deceptive and each act or instance can taint not only the individuals involved but an entire organisation, sometimes long into the future.  Within the context of expanding markets, broader legislation and global financial pressures, potential impacts are wide reaching and can include:

  • Convictions, fines and prison sentences for employees and officers;
  • Incurring substantial legal and professional fees, including increased cost of compliance through potential regulatory response;
  • Significant reputational damage at a corporate, personal and government level; and
  • Damage to the share price and loss of shareholder confidence.

The cliched “brown paper bag” is no longer the only way wrongdoing can manifest itself.  Recent experience shows there are more subtle strategies.   Consider the following:

Intentional financial mismanagement:

  • Double invoicing /split invoicing;
  • Raising debtors using personal bank details;
  • Payroll fraud; unauthorised salary increases, payment to ex-employees not terminated in the system;
  • Recording of false credits, rebates or refunds;
  • Misuse of suspense accounts;
  • Ghost contractors; and
  • Provision of unauthorised bonus payments.

Compromise of employees by collusive breaches of protocols, throughout the procurement “lifecycle””:

  • Invitation to quote;
  • Vendor vetting and selection;
  • Vendor contracting and maintenance;
  • Quality review; and
  • Payments process.

So what can be done?

Forensic Review

An allegation of bribery and corruption, or a formal investigation by a law enforcement or regulator into any organisation has the potential to be disruptive to day-to-day operations, extensive and far reaching.  It is possible to prepare for such an eventuality by undertaking an initial and preemptive Forensic Review.   Unique to each organisation, this review may include the following activities (often conducted under legal privilege):

  • Initial triaging of risk profile through meeting with organisation management. Areas of consideration include; geographic zones of operation, current ethical culture, previous incidents of corrupt activity and the quality and influence of management oversight;
  • Review of relevant policies and procedures;
  • Open source reputational due diligence on persons and entities of interest;
  • Forensic analysis of accounts payable, payroll and expenses to determine the volume and nature of any relevant payments;
  • Review and assessment of email and other electronic records in order to identify relationships and payments between people and entities of interest;
  • Formal forensic interviews; and
  • Forensic Report, including findings and recommendations for further targeted investigations.

Is this approach to the management of fraud and corruption risk excessive?….certainly not.

Experience shows that it is far better to proactively address these risks whilst the “heat is off” rather than when the regulator or law enforcement agencies instigate enquiries.

Corrupt behaviour – a case study

A senior Engineering Manager on a major Oil & Gas joint venture construction project was suspected to have been sub-contracting their privately owned excavation plant into their employer’s joint venture operation.

A subsequent investigation, utilising forensic accounting, data analytics and formal interviewing established that the Engineer had:

  • Over a twelve month period hired three items of their own plant into the j/v via a third party plant hire company. Furthermore, had received favourable treatment regarding fuel and maintenance allowances;
  • Accepted gifts and hospitality from the same third party, in breach of company regulations; and
  • Misled investigators regarding their ownership and use of plant.

As a result the Engineering Manager was dismissed. It was subsequently discovered that they had been investigated for similar activities whilst previously employed by another company.

How can I reduce the risk?

There is no shortcut to the effective management of fraud and corruption risk, however the following may help:

  • Establishing a robust fraud governance structure, clearly articulate roles and responsibilities;
  • Obtaining executive level buy-in and sponsorship;
  • Basing fraud management investments on risk;
  • Using security as an enabler, not just a cost;
  • Establishing a fraud awareness program; be seen to be tough on internal/collusive fraud; and
  • Continually reviewing and assessing.

Want to know more?

If you would like to discuss the management of bribery and corruption risk, or any more generic fraud risk management issue further, please contact Stephen Hipkin our Forensic Services Director.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

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