October 29, 2018 Preventing Corruption and Collusion

How to look for warning signs of corruption and collusion in the workplace to prevent devastating damage to your company.

Discovering corruption in the workplace is alarming. Considering the damaging financial and reputational losses for your business, it could be quite harmful to your bottom line. Unfortunately, unraveling the tangled web of collusion can be even more complex, and potentially devastating to a company.

Corruption in the workplace occurs when an employee exploits their position for personal or corporate benefit. Generally, it involves one employee who may have a conflict of interest. With proactive monitoring, the signs of corruption can be identified with relative ease.

Collusion, however, involves multiple people working together to abuse their power. When collusion occurs, the amounts lost by the company are significantly larger, and it can be far more difficult to pinpoint the perpetrators.

In the manufacturing industry, corruption is rampant – in fact, it is one of the top five industries where corruption is most prevalent. The Association of Certified Fraud Examiners estimated that 48 percent of fraud cases in the manufacturing industry involved corruption and caused an average loss of $194,000 in each case. If collusion was to occur in a similar situation, the damages could be nearly seven times worse.

When these stories are featured on the news, it’s easy to think, “That could never happen at my company.” Unfortunately, corruption and collusion can affect businesses of any size and any industry — including yours.

Because of the high risks associated with corruption and collusion, it is critical for management teams within organizations – public or private – to have a sound monitoring system in place to avoid this type of fraud.

In a corruption scheme, the benefit to the corrupt employee is often never recorded on the books of the company. However, the result of a corruption scheme leaves a multitude of warning signs that manifest themselves in the purchasing and disbursement processes.

Preset Limits

Be sure to examine preset limits — they can be a treasure trove when looking for signs of corruption. For instance, in a recent case we investigated, the organization had an approval limit set at $50,000. However, we discovered 48 instances of transfers with the amount of $49,999. Learn more about the results of this case in the video below.

https://www.forensicstrategic.com/videos/using-data-tell-story-find-answers

Consecutive Vendor Invoice Numbers

In another investigation, we identified that 99.9% of all invoices submitted by a vendor were just below the preset limit requiring a purchase order. The vendor submitted hundreds of consecutively numbered invoices each day for purchases by the same department for similar parts. This was done to circumvent the requirement for a purchase order and supervisory approval.

Behavioral Signs

Pay attention to attitudinal characteristics that can be common among perpetrators of workplace fraud. These include consistent unhappiness with their position, habitually circumventing established policies and refusing to share tasks or information with coworkers or management. These indications — although not inherently a threat — could point toward the existence of corruption or collusion in your workplace.

While the impacts could potentially be damaging, it isn’t too late to stop the actions before they occur or mitigate any existing damages. To prevent corruption and collusion, there are preemptive steps that can, and should, be taken.

Training

Require ongoing fraud training for all employees so they can better understand warning signs and become effective whistleblowers within the organization. Training can be held through methods like digital videos, live sessions or interactive self-study.

Create a Safe Environment

Management should prioritize creating an environment that promotes ethical behavior, where staff is comfortable declaring in writing any potential, perceived or actual conflicts. Everyone should feel safe to be transparent when reporting relationships and positions.

Education for Management

It is crucial that management be educated on the procedures for handling potential corruption and collusion cases. The moment after a problem is discovered is not the time to develop procedures. Rather, management should be implementing procedures already put into place. Make sure that leadership in your organization is properly educated by offering additional readings, learning opportunities and courses on fraud.

Although the possibility of corruption and collusion in your company can be daunting, there are ways to combat the threat. As long as leadership is sensitive to the warning signs of wrongdoing and actively works to create a culture of prevention, the likelihood of corruption and collusion will be drastically diminished.

Kelly Todd is a managing member and the member in charge of forensic investigations at Forensic Strategic Solutions. Kelly has a broad range of forensic experience, including financial and white‐collar investigations, fraudulent financial reporting, accounting malpractice, and the calculation of economic damages. For more information on how fraud can affect your company or the manufacturing industry as a whole, email Kelly at kelly@forensicstrategic.com or visit www.forensicstrategic.com.

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