Collusion in service or product provision

Customers bribe SME staff in exchange for favours at the SME’s expense

Risk type: Practice

Risk driver: Internal; External

DESCRIPTION

An SME staff member colludes with customers and receives bribes in exchange for discounts, lower bills, expedited services, information, or other benefits.¹ Customers may also bribe SME staff for services to which they are not entitled. For example, an SME receives funding in the course of a development cooperation project to serve customers in a given area. In order to illicitly obtain services from this project, a customer might bribe the SME staff.

RED FLAGS

• Preferential treatment of certain customers or customer groups
• Complaints by customers that the works performed in their location take much longer than at other place
• Staff member always wants to work with certain customers or in certain areas
• Lifestyles of staff with customer contact not in line with their salary bracket (car, accessories, etc.)

KEY GUIDING DOCUMENTS

STRATEGIC, 2009, Corruption Practices and the Available Complaint, Feedback and Redress Tool(s) and Anti-corruption Tool(s) in Water and Sanitation Sector – Bondo District, Strategic Public Relations and Research Limited, Draft prepared for Kenya Water for Health Organization (KWAHO) and United Nations Development Programme (UNDP)

KPMG, 2011, Who is the typical fraudster?, KPMG Analysis of Global Patterns of Fraud, KPMG International Cooperative

TARGETED EXAMPLES

Collusion between contractors and those with influence in the community²

Target group: SMEs

Location: Kenya

In areas that are served by piped water systems, there are allegations of collusion between contractors and those with influence in the community so that the water system passes near their homes. Indeed there were cases of unnecessary deviations to accommodate certain homesteads while no such favour is accorded to institutions and other heavily populated areas.

Illicit market speculations³

Target group: SMEs

Location: n.a.

An individual, in his late 20s, committed a fraud worth over $25 million.

He worked for a minerals company for more than four years, gaining the trust of senior management to such an extent that he was given responsibility for both hedging the price of minerals in the market and accounting for it in the back office. As a policy, the company did not seek to make a profit from hedging, but rather to guard against losses in a turbulent market.

The fraudster, deemed a very smart, hardworking, and honest employee, colluded with the company’s customers and passed discounts to them. He covered the discounts passed to customers by transferring profits from his illicit market speculation activities, accruing huge sums for himself as a ”kick-back”.

FULL REFERENCES

1. Asís, M. G. de, Leary, D. O., Ljung, P., and Butterworth, J., 2009, Improving Transparency, Integrity, and Accountability in Water Supply and Sanitation, World Bank Institute and Transparency International
2. Strategic, 2009, Corruption Practices and the Available Complaint, Feedback and Redress Tool(s) and Anti-corruption Tool(s) in Water and Sanitation Sector – Bondo District, Strategic Public Relations and Research Limited, Draft prepared for Kenya Water for Health Organization (KWAHO) and United Nations Development Programme (UNDP)
3. KPMG, 2011, Who is the typical fraudster?, KPMG Analysis of Global Patterns of Fraud, KPMG International Cooperative