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FOURTEEN. Corruption

WHEN MOST PEOPLE THINK OF CORRUPTION, bribery usually comes to mind. While bribery is the most common of corruption schemes, corruption also includes extortion, illegal gratuities, and conflict of interest. Corruption is where someone using the role of an employee colludes with a third party where the employee obtains a benefit. The major difference between corruption and other fraud schemes from a data analytical perspective is that the benefit is not recorded in the business system records. It is completely off the books of the organization that the employee works for.

BRIBERY

The most common corruption scheme is bribery. It is given to influence a decision or act to occur. It may be given ahead or after the act has occurred. The technical definition of bribery is restricted to that of influencing public officials. We will use the term bribery to include situations where employees of commercial enterprises influence business decisions. Bribes are given to the employees to obtain an advantage over others. Therefore not only will the organization suffer losses that may include excessive pricing and lower quality products, but competitors of the briber also suffer from their loss of business opportunities. Losses for the employee's organization are usually not immediate. There is no theft of assets or anything tangible from the organization so there is no apparent loss. Eventually there must be a cost to the organization. A bribe is given based on a business decision for business purposes. There must be a benefit to the briber of at least the value of the bribe, but usually significantly higher. A commercial return is expected for the bribe or else the bribe would not have been given in the first place. Bribes can take the form of cash, gifts, trips, and promises of future employment or contracts. These under-the-table payments do not directly have to benefit the corrupt employee as they can be directed to accomplices or relatives to conceal the gain.

Overbilling Schemes

Overbilling schemes are associated with purchase contracts. A bribe is given to the employee of the organization in order for the vendor to be selected over others. Benefits to the vendor include providing the goods or services at higher prices than competitors or providing lower-valued or poor-quality goods. Alternatively, or in addition, there could be unfavorable costs included in the contract, such as excessively high costs for additions or any other variations over the basic contract. The bottom line is that the organization eventually pays far more for the goods or services than they otherwise would have.

In order for the bribe to be of value, it must be given to someone with the ability to authorize or to arrange authorization of purchases. If the corrupt employee cannot authorize the purchase, then he or she must use techniques, such as forging the purchasing documents, to convince an authorizing officer that there is a need for the product, or include the fraudulent purchasing documents among legitimate ones for signature. The vendor has an employee working on the inside of the organization to vouch for any false documents or information provided by the vendor. The false documentation may include fraudulent invoices submitted to the organization and the corrupt employee ensures that they are paid.

Underbilling Schemes

In underbilling schemes, the organization sells their goods at less than regular amounts charged to other customers. The purchaser that paid a bribe obtains a better deal than otherwise entitled to. The selling organization receives a less than favorable price. The cost savings to the purchaser would normally exceed the amount of the bribe.

 
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