CORRUPTION IN PROCUREMENT

Definitions of corruption

Corruption is defined by the World Bank and Transparency International (TI) as “the misuse of public office for private gain.” As such, it involves the improper and unlawful behavior of public-service officials, both politicians and civil servants, whose positions create opportunities for the diversion of money and assets from government to themselves and their accomplices.

 What causes and fuels corruption

Corruption distorts resource allocation and government performance. The causes are many and vary from one country to the next. Among the contributing factors are:

·        Policies, programs and activities that are poorly conceived and managed,

·         Failing institutions,

·         Poverty and Deprivation

·         Income disparities,

·        Inadequate civil servants’ remuneration,

·        Lack of accountability and transparency.

·        Political and or Economic Brigandage

Public servants, lacking a service mentality, become more interested in serving themselves than serving the public, a lack of political commitment and resources, institutional, human, and financial hampers anti-corruption efforts.

 Levels of corruption

There are several types of corruption. The distinctions can be useful in designing and developing reform programs and strategies:

·         Petty corruption: practiced by public servants who may be basically decent and honest individuals but who are grossly underpaid and depend on small bribes from the public to feed and educate their families;

·        Grand corruption: high-level public officials and politicians make decisions involving large public contracts or projects financed by external donors. This corruption is motivated by personal greed. The money or assets from such corruption usually is transferred to individuals or political party coffers.

·        Episodic corruption: honest behaviour is the norm, corruption the exception, and the dishonest public servant is disciplined when detected; and

·         Systemic corruption: channels of malfeasance extend upwards from the bribe collection points, and systems depend on corruption for their survival;

Corruption can also be categorized in other ways. A distinction can be made between benefits that are paid willingly (bribery) and payments that are exacted from unwilling clients (extortion). Another way to categorize is to differentiate between bribes paid for what a client has a legal right to receive and bribes paid to receive benefits belonging to others.

FORENSIC ACCOUNTANTS VIEW:

THE “SNIFF TEST” In theory, any employee authorized to spend an organization’s money is a possible candidate for corruption. Those paying the bribes tend to be commissioned salespeople or intermediaries for outside vendors. The following players usually are present in a corruption scheme.

The gift bearer.  Illegal inducements often begin when a businessperson routinely offers inappropriate gifts or provides lavish entertainment to an employee with purchasing authority or otherwise tries to ingratiate himself or herself for the purpose of influencing those in charge.

The odd couple.  When a purchasing agent becomes the “friend” of an outside vendor, beware. A key technique bribe-givers use is to befriend their targets. They go to lunch together, take trips and engage in other social outings. But often the pair has nothing in common except for an illegal scheme.

The too-successful bidder.  A supplier who consistently wins business without any apparent competitive advantage might be providing under-the-table incentives to obtain the work. Be alert to sole-source contracts and to bidders who nearly always win, who win by thin margins and who bid last. These are indicators someone at the company is supplying the winning bidder inside information.

The one-person operator.  Some suppliers, rather than directly engage in payoffs, hire someone—called a bagman—to do the dirty work. Be alert to independent sales representatives, consultants or other middlemen, as they are favored conduits for funneling and concealing illegal payments.

Once an employee crosses the line and accepts kickbacks, he or she hardly is in a position to complain to the vendor about goods or services. The vendor knows this and often reacts by supplying items of poor quality and raising prices for purchases.

When a corrupt employee takes bribes, the underlying business arrangement usually is flawed. For instance, the products or services the dishonest worker contracted for, besides being substandard, are often unneeded, purchased from remote or vague sources, bought at odd times or from odd places or make little economic sense. To help uncover fraudulent transactions, CPFA should employ skepticism when examining the rationale for material purchases by the company.

UNDER-THE-TABLE PAYMENTS
Being the conduit or bagman for bribe money is a profession of sorts; learning to pass bribes and get away with it takes experience and know-how. This particular profession tends to attract a small cadre of sleazy people. They typically are one-person operations and pass bribes for a variety of “clients.” For example, during the Pentagon procurement scandals of the 1980s, just one bagman represented some of America’s largest defense contractors.

THE BRIBE-TAKER GETS INVOLVED
Anyone who takes a bribe makes a pact with the devil. Since the employee is committing a crime, he or she will go to extreme lengths to avoid discovery; that means keeping the bribe-giver happy. Corrupt employees must frequently intercede to resolve problems for the vendor, such as demanding that payments be expedited or requesting that substandard work be accepted. CPFA should look for these anomalies

THE CONTINUITY CIRCLE

As corruption schemes progress, conspirators usually get careless. Frauds—including bribes and kickbacks—normally are not one-time events, but continuous crimes that occur over extended time periods.

The perpetrator’s modus operandi tends to change over time. Initially, the crooked employee carefully covers his or her tracks. But as the crime progresses without being uncovered, perpetrators look for ways to accomplish the same illegal goals with less hassle. In the beginning the suspect may make sure all of the documents appear in order. Later, he or she may not even bother with any phony paperwork.

CPFA should consider major deficiencies in contract documentation to be a significant red flag. Moreover, many fraudsters don’t continue to conceal their ill-gotten gains very well. In short, they get sloppy. In fact, most of the time, the bribe-taker will deposit the illicit funds in his or her own bank account.

Bribery and Kickback Red Flags in your Organizations:

  Rising expenses for goods and services.

  Slow deliveries from or substandard performance by a vendor.

  Rapidly increasing purchases from one vendor.

  Excessive purchases of goods or services.

  No division of duties between new vendor approval and authorization for purchasing.

  Contracts written to limit competition (for example, sole-source contracts).

  The same vendor always wins contracts by small margins.

  The contract always goes to the bid received last.

  Splitting one purchase into multiples to avoid the approval process.

  Paying above-market prices for goods or services.

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