Corruption Fraud

7/24/2019 Corruption Fraud

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RRUPTI N

FRAUD


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Corruption is a term used to describe

various types of wrongful acts designedto cause an unfair advantage.

It involves the wrongful use of inuence toprocure a benet for the actor or anotherperson, contrary to the duty or the rights ofothers.

Corruption

Source: 2015 International Fraud Examiners

Manual


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Forms of corruption

Bribery Kickbacks

Illegal gratuities

conomic e!tortion "ollusion

#he most common area for corruption inan organi$ation is in thepurchasingenvironment/function, and most corruption schemesinvolve employees acting alone or in collusion with

vendors/contractors.

Corruption


Manual


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Bribery may be dened as the o%ering, giving,

receiving, or soliciting of corrupt payments &i.e.,items of value paid to procure a benet contrary tothe rights of others' to inuence an o(cial act orbusiness decision.

It involves collusion between at least two parties.

"lassications

)(cial bribery * refers to the corruption of a

public official to influence an official act of government. "ommercial bribery * refers to the

corruption of a private individual to gain acommercial or business advantage

Bribery


Manual


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Kickback is form of negotiated bribery in

which a commission is paid to the bribe*taker ine!change for the services rendered.

Kickbacks are improper, undisclosedpayments made to obtain favourable treatment.

In the government setting, kickbacksrefer to the giving or receiving of anything ofvalue to obtain or reward favourable treatmentin relation to a government contract.

In the commercial sense, kickbacks refer

to the giving or receiving of anything of value toinuence a business decision without the

employer+s knowledge and consent.

Kickback


Manual


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Illegal gratuities are items of value given to reward a

decision, often after the recipient has made thedecision.

Illegal gratuity schemes do not necessarilyinvolve an intent to inuence a particular decisionbefore the fact.#hat is, an illegal gratuity occurswhen an item of value is given for, or because of,some act.

It can &and do' evolve into bribery schemes

Illegal Gratuities


Manual


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Extortion is dened as the obtaining of

property from another, with the other party+sconsent induced by wrongful use of actual orthreatened force or fear.

conomic e!tortion is present when anemployee or o(cial, through the wrongful use ofactual or threatened force or fear, demandsmoney or some other consideration to make aparticular business decision.

#hat is, economic e!tortion cases are

the -ay up or else ... corruption schemes.

Economic Extortion


Manual


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#o constitute e!tortion, the threat must be the

controlling reason that the victim gives up a right orproperty.#he following types of threats canconstitute e!tortion/

-hysical harm

-roperty damage

0ccusing a person of a crime

1isgracing a person

-ublic e!posure

Economic Extortion


Manual


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Collusion refers to an agreement between two

or more individuals to commit an act designed todeceive or gain an unfair advantage.

It is an agreement, usually secretive, whichoccurs between two or more persons to limit open

competition by deceiving, misleading, or defraudingothers of their legal rights, or to obtain an ob2ectiveforbidden by law typically by defrauding or gainingan unfair advantage.

It can involve an agreement amongcompanies to divide the market, set prices, orlimit production. It can involve wage !ing,kickbacks, or misrepresenting the independence

of the relationship between the colluding

Collusion

Sources: 2015 International Fraud Examiners Manual,http://www.usiness!anti!corruption.com/aout/aout!corruption/"ocaular#.aspx$%atrona&e
http://www.business-anti-corruption.com/about/about-corruption/vocabulary.aspx#Patronagehttp://www.business-anti-corruption.com/about/about-corruption/vocabulary.aspx#Patronagehttp://www.business-anti-corruption.com/about/about-corruption/vocabulary.aspx#Patronage


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3ifts, travel, and entertainment 4 wine

and li5uor, clothes and 2ewelry, lavishentertainment, paid holidays, free lu!urytransportation, free use of resort facilities

"ash payments 4 when involving minimal

amount

"hecks and other nancial instruments4 business checks, cashier+s6manager+schecks, wire transfer

7idden interest in a 2oint venture orother prot*making enterprise.

#ransfer of properties for a value other than

fair market

Methods of Making Corrupt Payments


Manual


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-oor internal controls over key areas, such as

purchasing, inventory receiving, and warehousing-oor recordkeeping

-oorly dened roles and responsibilities

Insu(cient capacity to monitor high*risk employeesor units

Inade5uate anti*corruption control plan

-oor separation of duties in purchasing

8ack of transparency in e!penses and accountingrecords

-oor enforcement of e!isting policies onconicts of interest or acceptance of gratuities

-oor documentation supporting award of

Internal Control Red lags of Corruption


Manual


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0 conflict of interest occurs when an employee oragent &someone who is authori$ed to act on behalfof a principal' has an undisclosed personal oreconomic interest in a matter that couldinuence his professional role.

#hese schemes involve self*dealing by anemployee or agent and can occur in variousways.

"onict of interest schemes generally constitute

violations of the legal principle that an agent oremployee must act in good faith, with fulldisclosure, and in the best interest of the principal oremployer.

0 conict of interest e!ists when someone,her6his

Conflict of Interest

Sources: 2015 International Fraud Examiners Manual,http://www.usiness!anti!corruption.com/aout/aout!corruption/"ocaular#.aspx$%atrona&e


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0n agent is any person who, under the law, owes

a duty of loyalty to a principal or employer.0gents include o(cers, directors, and employees ofa corporation9 public o(cials9 trustees9 brokers9independent contractors9 attorneys9 and

accountants. 0principal is an entity that authori$es an

agent to act on its behalf.

In a principal*agent relationship, the agent acts onbehalf of the principal, and the agent should nothave a conict of interest in carrying out the act

on behalf of the principal.

"onicts of interest do not necessarilyconstitute le al violations, as lon as the

Conflict of Interest


Manual


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-urchase schemes

:ales schemes

1elayed billings

Business diversions

;esource diversions Financial interest in companies under perpetrator+ssupervisions

Financial disclosures

Common !ypes of Conflict "chemes


Manual


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If the employee/

7as an undisclosed nancial interest in a supplieror contractor

:ets up a bogus contractor or vendor, or buysthrough a broker or middleman that the

employee controls

Is involved in other business ventureswith a supplier or contractor

7as an interest in a business thatcompetes with his employer

0ccepts inappropriate gifts, travel,entertainment, or fees &kickbacks' from

a vendor

Conflicts in Purchasing "chemes


Manual


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Underselling - causing the employer toundersell goods, services, or properties to acompany in which the employee maintains ahidden interest

Writing of sales - tampering with the victimcompany+s books to decrease or write o% the amountowed by the company in which the employee has a

hidden interest.

Conflicts in "ales "chemes


Manual


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In other cases, the perpetrator might not writeo% the scheme, but simply delay billing.

#his is sometimes done as a favor to a

friendly client and is not an outright avoidance ofthe bill but rather a dilatory tactic.

#he victim organi$ation eventually gets

paid, but loses time value on the payment,which arrives later than it should.

Conflicts Influencing #elayed Billings


Manual


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0 number of employees end up starting

their own businesses that compete directly withtheir employers, and when this occurs, suchemployees might begin siphoning o% clients for theirown business.

#his activity clearly violates the employee+sduty of loyalty to the employer, and fre5uentlyviolates the company+s internal policies.

#here is nothing unscrupulous about freecompetition, but while a person acts as arepresentative of his employer, it is improper for him

to try to take his employer+s clients.


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:ome employees divert the funds and

other resources of their employers to thedevelopment of their own businesses.

#his kind of scheme involves elementsof both conicts of interest and fraudulentdisbursements.

Conflicts in Resource #i$ersions


Manual


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:ometimes an employee will have a director indirect nancial interest in a company underhis supervision.

For e!ample, accountants sometimes holdstock in a company they audit.#hese problems

often occur in government.

Conflicting inancial Interest in Companies

%nder Perpetrator&s "uper$ision


Manual


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=anagement has an obligation to disclose to

the shareholders signicant fraud committed byo(cers, e!ecutives, and others in positions oftrust, but misplaced loyalties might preventmanagement from making such disclosures.

#he inade5uate disclosure of conicts ofinterest is among the most serious of frauds.

Inade5uate disclosure of related*partytransactions is not limited to any specic industry9it transcends all business types and relationships.

Conflicts in inancial #isclosures


Manual


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#he need or use of the item is falsely

described.#he intent of the e!penditure is toenrich the employee+s lifestyle

-rimary variations of the scheme

#he employee purchases goods or servicesthat are personal in nature and provide no usefulbusiness purpose9 the employee subse5uentlydiverts the item to personally benet from it

#he 5uantity e!ceeds the company+s needs,and the employee en2oys the e!cess items

#he employee intentionally procures items ine!cess of company needs and then diverts the

items for eventual resale

#isguised Purchases

Source: Fraud 'is( )ssessment: *uildin& a Fraud )udit %ro&ram!+eonard . -ona oo&le *oo(s


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Bid rigging is a form of fraud in which a

commercial contract is promised to one partyeven though for the sake of appearance severalother parties also present a bid.

It is a form of price !ing and market allocation,often practiced where contracts are determined by acall for bids, for e!ample in the case ofgovernment construction contracts

Bid rigging almost always results in economic

harm to the agency which is seeking the bids, and

to the public, who ultimately bear the costs as

Bid Rigging


Manual


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Bid suppression occurs where some of the

conspirators agree not to submit a bid so thatanother conspirator can win the contract.

Complementary bidding, also known as coverbidding or courtesy bidding, occurs where

some of the bidders agree to submit bids that areintended not to be successful, so that anotherconspirator can win the contract.

Bid rotation occurs where the bidders take turns

being the designated successful bidder, fore!ample, each conspirator is designated to be thesuccessful bidder on certain contracts, withconspirators designated to win other contracts.

!ypes of Bid Rigging


Manual


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Bid pooling 4 a type of fraud that occurs

in a competitive bidding environment witha limited number of bidders.

Bidders coordinate bids on di%erent contracts sothat each gets a contract.

For e!ample, if a company is soliciting bids

for raw materials, the vendors can each agree tobe the low bidder on one type of raw material,thereby guaranteeing that each gets part of thesales.

Bid Pooling

Source: http://www.accountin&tuition.com/id!poolin&.html
http://www.accountingtuition.com/bid-pooling.htmlhttp://www.accountingtuition.com/bid-pooling.htmlhttp://www.accountingtuition.com/bid-pooling.htmlhttp://www.accountingtuition.com/bid-pooling.html


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-atronage * the use of state resources to

reward individuals for their electoral support.

It is a system in which political supportersare rewarded for their support, such as by being

appointed to public o(ce or receiving contracts,subsidies or other benets.

Patronage

Sources: http://www.usiness!anti!corruption.com, wi(ipedia

Id tit d
http://www.business-anti-corruption.com/http://www.business-anti-corruption.com/


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Identity thet

Identity theft happens when fraudsters accessenough information about someone+s identity &suchas their name, date of birth, current or previousaddresses' to commit identity fraud. Identity theftcan take place whether the fraud victim is alive or

deceased.

Identity raud

Identity fraud can be described as the use ofthat stolen identity in criminal activity to obtaingoods or services by deception.

Identity raud


Manual

Identity raud


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Fraudsters can use your identity details to/

)pen bank accounts.

)btain credit cards, loans and state benets.

)rder goods in your name.

#ake over your e!isting accounts.

#ake out mobile phone contracts.

)btain genuine documents such as passports anddriving licenses in your name.

:tealing an individual+s identity details does not, on its

own, constitute identity fraud. But using that identity forany of the above activities does.

Identity raud

Source: http://www.actionraud.police.u(/raudprotection/identit#raud
http://www.actionfraud.police.uk/fraud_protection/identity_fraudhttp://www.actionfraud.police.uk/fraud_protection/identity_fraudhttp://www.actionfraud.police.uk/fraud_protection/identity_fraudhttp://www.actionfraud.police.uk/fraud_protection/identity_fraud


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"harity fraud is the act of using deception to getmoney from people who believe they are makingdonations to charities. )ften a person or a group ofpeople will make material representations that they area charity or part of a charity and ask prospective donors

for contributions to the non*e!istent charity. "harityfraud not only includes ctitious charities but alsodeceitful business acts. 1eceitful

business acts include businesses accepting donations

and not using the money for its intended purposes

Charity raud

Source: en.wi(ipedia.or&/wi(i/3harit#raud


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1isaster fraud is a deliberate act to deceive

people, government organi$ations or privateindustries after devastating events for personalnancial gain.

"an be categori$ed as/ "haritable solicitation fraud is the act of

soliciting funds by posing as a legitimatecharitable organi$ation.

"ontractor and vendor fraud is the act ofposing as a legitimate vendor, worker orrepairman to collect payment but nevercomplete the tasks in 5uestion.

-rice ou in is the act of increasin the

#isaster Relief und raud

Source: http//securit#intelli&ence.com/disaster!raud!criminals!capitali4in&!on!

catastrophes/

' lth C


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7ealth care fraud involves a deception or

misrepresentation that an individual or entitymakes, knowing that the misrepresentation couldresult in some unauthori$ed benet to theindividual or to the entity or some other party.

#he most common fraud involves a falsestatement or a misrepresentation or deliberate

omission that is critical to the determination ofbenets.

1ue to the highly technical nature of thehealth care industry and the broad diversity inpayment systems throughout the world, health carefraud schemes can be among the most comple!.

'ealth Care

raud


Manual


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-rovider fraud consists of practices by health care

providers &including practitioners, medical suppliers,and medical institutions' that cause unnecessarycosts to health care programs or patients throughreimbursement for unnecessary or e!cessive

services, or services that do not meet the recognis$dstandards for health care.

'ealth Care raud


Manual


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>hile it is typical to think of providerfraud as schemes committed by physicians,nurses, and other direct service providers, fraudschemes by organi$ations and individuals

providing medical e5uipment and supplies arealso common.

=edical services generally re5uire many

types of supplies and e5uipment, ranging fromsimple gau$e to high*cost =;I machines.

#he following are several types ofschemes committed by e5uipment

Medical E(uipment and "upplies "cheme


Manual


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Ambulance Transportation

Fraudulent billing for ambulance transportation caninclude bills for more mileage than incurred, for tripsnever taken, or for trips not covered by the healthprograme.

Inusion CareFraud schemes involving infusion care treatmentinclude/

:ervices billed at abnormally high rates in

comparison to cost

Bills for patients who are not beneciariesof the health care programe

Bills in e!cess of the physician+s prescription


Kickbacks given to the prescribing physician


M di l E i d " li " h


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Reusable edical !"uipment

;eusable medical e5uipment includes itemssuch as crutches, wheelchairs, speciali$ed patient

beds, and so on. Fraud schemes by reusablemedical e5uipment suppliers fre5uently involve/

Falsied prescriptions for e5uipment orsupplies

Intentionally providing e!cessive supplies

5uipment not delivered or billed before

deliveryBilling for e5uipment rental beyond when

the e5uipment was checked out


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Medical E(uipment and "upplies "cheme #harmaceuticals

-harmaceutical fraud is the largest single

source of provider fraud in the health care industry,and can involve pharmaceutical manufacturers,pharmacies, and providers who prescribe suchproducts. Fraud schemes stemming from pharmacy

transactions include/ =erchandising?substituting something

of value for a prescription drug

Billing for brand name drugs but

dispensing generic drugs Billing beyond amount prescribed

Billing for drugs not prescribed

Billing for a high*priced generic drug but

dispensing a lower*priced generic drug

M di l E i t d " li " h


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Impostor #rovider

0n impostor provider is a provider who does not e!ist butbills fraudulent claims. 0 variation on this scaminvolves assuming the identity of a deceased providerand practice?or putting together a group of licensed

providers?and fraudulently billing under the group+sprovider identication code.

$alse %iagnoses

>hen a provider knows that a service is not covered bya health care program, he might use false diagnoses orprocedure code manipulation. !amples of commonservices not covered are investigational or e!perimental

procedures and cosmetic surgery &althoughcovere



Manual

M di l E i t d " li " h


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%ouble Billing

1ouble billing occurs when the health carebeneciary or the provider seeks to be paid twice forthe same service.#he fraud might be perpetrated by

the beneciary, with the complicity of the provider,or it might be done by the provider alone.#he billmight be submitted to two &or more' di%erent healthcare programs, or it might be submitted twice to the

same health care program with documentationintended to show that two separate e!penses havebeen incurred.


Corruption Fraud

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