Kickbacks – Are they a problem in your Department?

Disciplinary action from the investigations into corruption in our State and Local Governments littered the press recently, with many Councils and State Government Departments now under increasing internal and external scrutiny over contracts awarded and gifts received.

So we thought it was timely to look at what constitutes a kickback, fraud or inappropriate acceptance of gifts, and offer you some tips into how you can reduce the incidence of fraud in your organisation.

Occupational fraud is defined as ‘The use of ones occupation for personal enrichment through the deliberate misuse or misapplication of the employing organisation’s resources or assets’.

It covers a wide range of potential misconduct by employees, managers and executives, but the three most common are:

Asset misappropriation:

The misuse or theft of assets belonging to an organisation. In the real world this can be as simple as the inappropriate expensing of funds, theft of items from the office, or skimming of money being paid to the organisation.

By and large asset misappropriation is the most common type of occupational fraud.

Corruption and bribery:

The use of legitimate power for illegitimate private gain. In real world application, corruption is seen often as bribery, the inappropriate request for, or receipt of gifts as kickbacks for contracts awarded or decisions made, or coercive acts like extortion, where threats of violence are used to make somebody endure or do something they otherwise would not do.

Fraudulent statements:

The deliberate creation of false statements and documents that substantially affect a business’ or persons’ decision to enter into a contract or pursue a particular course of action. In business and Government this is seen in the calculated dishonesty of those submitting for a tender or contract, misstating their financial strength; or by concealing something that should have been disclosed in the application for credit, finance or similar.

So how can you minimise the risk of occupational fraud in your organisation?

Fraud, corruption and bribery are an enormous concern for both Government and business in our modern society. Dishonesty in the awarding of contracts and the delivery of services and monies have the capacity to disarm whole divisions of Government, and retard the legitimate business development efforts of honest product and services providers.

Paul Horne, the Director of our Government Audit Division suggests these eight steps:

Prepare and publicise a written code of conduct that makes sure management knows it is their job to understand risk areas for fraud, and play an important role in reporting inappropriate behaviour.

Educate employees about what constitutes fraudulent behavior and how they can prevent and detect it in their division.

Train and motivate management to lead with incredible integrity and honesty, setting a solid example for the organisation.

Set up an anonymous fraud hotline where staff, suppliers and customers can report inappropriate activity.

Reduce the opportunity for fraud to be committed without detection by holding regular audits, and putting in place diligent internal control systems that require signoff and oversight from peers and managers.

Divide up the financial tasks that can be performed by any one individual to avoid one person being completely responsible for all financial elements.

Carefully selecting and screening employees that work in areas of concern or risk, like procurement, finance and project management.

If it all gets messy, and fraud has been found, don’t be afraid to visibly prosecute those who perpetrate it. A public prosecution increases the understanding of the risks associated with inappropriate behaviour and hopefully discourages anyone who might have been thinking it was a smart idea.

Government Fraud Prevention Program

Our Government Fraud Prevention Program takes an in-depth look into the systems, processes and the operations of your department, and prepares a plan to tackle all points of weakness. Our comprehensive audit ensures that you completely understand your fraud risks and develops a tactical implementation plan to roll out risk mitigation strategies that are specific to your requirements. It is our role to make your procurement, management and governance completely transparent.