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Corruption

Corruption. Pop Quiz. What are the two principle schemes involving bribery?. Corruption. Conflicts of Interest. Bribery. Illegal Gratuities. Economic Extortion. Purchase Schemes. Invoice Kickbacks. Sales Schemes. Bid Rigging. Other. Other. The Statistics. Frequency?

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Corruption

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  1. Corruption

  2. Pop Quiz What are the two principle schemes involving bribery?

  3. Corruption Conflicts of Interest Bribery Illegal Gratuities Economic Extortion Purchase Schemes Invoice Kickbacks Sales Schemes Bid Rigging Other Other

  4. The Statistics • Frequency? • Median loss? • Dollar Loss? • Detection? • Who did it? • Company size?

  5. What is Bribery? • Influence an official act • Buys influence • Commercial bribery • Kickbacks • Bid-rigging schemes

  6. What are Kickback Schemes? • Invoice: overpriced or fictitious • Collusion • Purchasing

  7. Types of Kickback Schemes • Diverting business to vendors • Steady stream of business • Any incentives to improve quality of merchandise? Lower Prices?

  8. Overbilling Schemes • Employees with approval authority • Inflated invoices • Overstates cost or fictitious sales

  9. Overbilling Schemes • Employees lacking approval authority • Circumvents purchasing controls • false vouchers • Forge approval signature • Access to password • Very tough to detect.

  10. Other Kickback Schemes • Discounts for bribes • Slush funds

  11. Detecting Kickbacks • Normal controls? • Price inflation? • Monitor trends • excessive purchases • Shortages • Inferior goods • actual vs budgeted

  12. Preventing Kickbacks • Independent employee review. • “Right to audit” clause • Written policies re: • Soliciation or acceptance • Undisclosed interests • Ethics policies with punishment

  13. What are Bid-Rigging Schemes? • Even playing field • Power over bidding process • Who might potential targets be?

  14. Four Good Times to Rig Bids • Pre-solicitation • Specification • Solicitation • Submission

  15. What Could Happen in the Pre-Solicitation Phase?

  16. What Could Happen in the Specification Phase?

  17. What could happen in the Solicitation Phase?

  18. What Could Happen in the Submission Phase?

  19. How can bid rigging schemes be detected? • Look for: • Unusual patterns • Big price differences • Predictable rotation • Losing bidders subcontractors • Same address and phone number • Few bidders • Split up projects

  20. What do “they” get? • Cash • Future employment/ownership • Gifts • Credit card bills • Loans • Property

  21. Illegal Gratuities vs Economic Extortion • Illegal gratuities • Given to reward • Economic extortion • “Pay up or else”

  22. Conflicts of Interest • undisclosed economic or personal interest • Victim organization is unaware • Fraudster approves the invoice because of his own hidden interest in the vendor • Two major types • Purchasing schemes • Sales schemes

  23. Purchasing Schemes • Overbilling schemes • Turnaround sales

  24. Sales Schemes • Underbillings • Writing off sales

  25. Other Conflict of Interest Schemes • Business diversions • Resource diversions • Financial disclosures

  26. So . . . . How can we Prevent Detecting These Conflicts of Interest • Ethics policy • annual disclosure statement • anonymous reporting mechanism • Compare vendor to employee

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