Contract and Procurement Fraud Bribery and Corruption
Corruption The wrongful use of influence to procure a benefit for the actor or another person, contrary to the duty or the rights of others Forms of corruption: Bribery Kickbacks Illegal gratuities Economic extortion Conflicts of interest 2 of 16
Bribery The offering, giving, receiving, or soliciting of anything of value to influence an official act or business decision Two types: Official bribery: The corruption of a public official to influence an official act of government Commercial bribery: The corruption of a private individual to gain a commercial or business advantage 3 of 16
Methods of Making Corrupt Payments Inappropriate or excessive gifts or favors Loans Use of credit cards or payment of credit card bills Sexual favors Overpaying for purchases Free use or discounted rent for housing/vehicles Outright payments via cash or check Hidden ownership interests Selling/leasing property at less than FMV Promises of favorable treatment 4 of 16
Corrupt Influence Improper selection, such as unjustified sole sourcing Paying too much for goods or services Buying too much Continued acceptance of low quality or noncompliant goods or services Late, short, or non-delivery of goods or services 5 of 16
Kickbacks A type of bribe in which the commercial or business advantage is favorable treatment in connection with a contract or subcontract 6 of 16
Illegal Gratuities Something of value given to an employee to reward a decision after it has been made, rather than influence it before the decision is made A lesser-included offense of official bribery Does not require proof of the intent to influence 7 of 16
Economic Extortion Other side of a bribery case Employee or official, through the wrongful use of actual or threatened force or fear, demands money or other consideration to make a particular business decision 8 of 16
Conflict of Interest Employee or agent has an undisclosed personal or economic interest in a transaction that adversely affects his professional role 9 of 16
Red Flags of Corruption Schemes Red flags in the profiles of the corrupt recipient Red flags of corrupt contracts Internal control red flags Analytical red flags 10 of 16
Red Flags of Corrupt Contractors Due diligence reveals any of the following: Inadequate financial resources Poor record of performance Reputation for dishonesty Prior complaints or criminal or civil actions A history of fraudulent conduct Undisclosed outside business interests or front companies owned by the contracting employee Family ties with a procurement employee 11 of 16
Red Flags of Corrupt Contractors The contractor s contact information matches any employee s (or employee s relative s) contact information. The contractor s address is not complete. Multiple addresses are listed for the contractor. 12 of 16
Red Flags of Corrupt Contractors The contractor, the contractor s industry, or the contractor s country has a reputation for corruption. The contractor does not relate well to other contractors. The contractor is not on the approved contractor list. 13 of 16
Analytical Red Flags Repeated selection of particular vendor and decreasing purchases from other vendors Repeat contract awards made to poorly performing contractors Unexplained increases in volumes of purchase Unnecessary or inappropriate purchases 14 of 16
Analytical Red Flags Same contractor repeatedly awarded competitive contracts based on bids only slightly lower in price than other competitors Unnecessary or inappropriate purchases of goods or services Questionable or improper method of selecting a contractor Questionable, undocumented, or frequent change orders awarded to a particular contractor 15 of 16
Analytical Red Flags Unusual and unexplained delays in the procurement process Unnecessary middleman or broker who offers no obvious value to the performance of the contract Middleman charges high commission Middleman claims to have special influence with a specific buyer 16 of 16