Every year, trillions of dollars are lost through bribery and corruption. The highest bribery risk firms face comes from third parties. So, how can you spot it?
The Foreign Corrupt Practices Act and UK Bribery Act 2010 threaten severe penalties. However, data from Transparency International UK shows that the international cost of corruption amounts to $3.6 trillion annually.
According to PwC's most recent Global Economic Crime Survey, fraud or some type of economic crime has affected 46% of UK companies over the past 24 months. Among the 19 categories of economic crime, cybercrime stands out and significantly affects all industries.
In its Global Fraud and Risk Report 2021/2022, Kroll reported that the biggest threat related to bribery and corruption in the UK comes from a lack of visibility over third parties, with a further 24% of the threat stemming from employees' actions.
So how can companies prevent bribery and corruption in their business, especially involving third parties and employees? Top of your list should be spotting the red flags that suggest that bribery or corruption could be taking place...
Corrupt payments can sometimes be concealed as bona fide expenditures. If an employee purchases unnecessary or inappropriate items from a supplier or contractor with no obvious business need, this could indicate a potentially corrupt relationship.
Watch out for frequent low-level orders or purchases of large quantities, particularly if there is no visible need for such items or those goods never seem to materialise.
Corrupt payments and bribes may be concealed in invoices. For example, invoices may be submitted without any actual work being done and no supporting documentation, haemorrhaging funds away from the business. Invoices may also conceal corrupt payments, which appear as extra fees, expenses or charges.
Look out for over-inflated invoices or invoices that cannot be matched to any discernible output. Alarm bells should ring if fees, commissions or expenses are listed without supporting documentation. Always look for a pattern of questionable invoices, as this can indicate that the invoices are being used to fund bribe payments.
If an employee continues to work with or accept sub-standard goods or services despite complaints, this could be a strong indicator of possible corruption.
You'll need to consider whether they may be getting a kickback from the supplier or contractor for continued business.
The risk of bribery and corruption can increase with close connections or links between an employee and a supplier or contractor. At worst, nepotism and cronyism can cloud your judgement and lead to bad decisions which are not in the company's best interests. At best, this can give a perception of corruption.
Consider whether an employee has a personal or economic interest in a particular transaction or appointment. What is their personal relationship with them? Are there close links? Does their behaviour change when certain suppliers are mentioned? Are they acting differently or suspiciously? Is there an insistence that they alone deal with a certain supplier? All this could indicate a conflict of interest.
Bribery and corruption can occur via intermediaries and agents, who may appear to do no more than facilitate the deal.
Be suspicious if the third party your company is dealing with seems unqualified for the job they are contracted to perform, if they have no track record in the industry in which they operate if they lack facilities or resources required to perform the work if they come highly recommended by a foreign public official and seem able to bypass legal or bureaucratic hurdles effortlessly.
Finally, bribes and corrupt payments may be concealed as travel expenses or hospitality. Expenses should only be reimbursed for legitimate business expenditure, backed up with supporting documentation.
Look out for travel and expense forms with missing receipts or that don't add up - e.g. a reported trip to a supplier's site that didn't happen. Sharp practices could signify something bigger like internal fraud or business money being used for improper payments.
By being aware of the potential signs of bribery and corruption, you can help to protect your company from penalties and safeguard the company's reputation. Not only will people know the signs to look out for, but the raised awareness could help put people off and prevent corruption from happening in the first place.
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