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Tackling Corruption at Workplace - a report by SuperCFO


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All of us working professionals have been witness to some corrupt practices at our respective workplaces. Our entire socio - economic structure has been a victim of this scourge. While countries across the world have woken up to the reality of Corruption at the workplace, in form of introducing new legislations in an effort to curb it, the US has taken a stellar lead with the Foreign Corrupt Practices Act. It is about time all us law-abiding citizens take some concrete measures (big or small), in an effort to wipe out the tyranny of corruption from the face of this earth. While it is a daunting task, we should not be overwhelmed by it. We must at least make an effort, individually and collectively, to minimize the impact of the scourge of Corruption at the workplace. Therefore, the purpose of this report is to create greater awareness among all the Business Stakeholders about how corruption/fraud/use of company resources for personal gains, soils the sanctity of the workplace, the reason it takes place and what are some of the remedial measures that organizations should adopt to curb the same.

This report is formed from general research and also by incorporating views of various individuals in responsible positions, which was congregated by SuperCFO by carrying out a survey on the said subject. SuperCFO is greatly thankful to all the participants of the survey who contributed their personal experiences on how & where this happens and also have shared their views & suggestions as regards how to minimize corrupt practices and how to deal with personnel who deliberately siphon off office wherewithal for personal gains.

Tackling Corruption at Workplace - a report by SuperCFO

  1. 1. Author NoteAll of you must have been witness to some or the other corrupt instances at yourworkplace. Our entire socio - economic structure has been a victim of this scourge.While regulations are being introduced by several countries to curb corruption, with theUS taking the lead with FCPA, it is about time all us law-abiding citizens take someconcrete measure (big or small), in an effort to wipe out the tyranny of corruption fromthe face of this earth.  And though it is nearly impossible to eradicate corruptionentirely, we must take necessary steps, in our individual and collective capacities, tominimize the same at least at our workplace.The purpose of this report is to create awareness among the Business Stakeholders abouthow corruption/fraud/use of company resources for personal gains happens atworkplace, why it happens and what should one to curb the same. This report is formedfrom general research and also by incorporating views of various individuals inresponsible positions, which was congregated by SuperCFO by carrying out a survey onthe said subject.SuperCFO is greatly thankful to all the participants of the survey who contributed theirpersonal experiences on how & where this happens and also have shared their views &suggestions as regards how to minimize corrupt practices and how to deal withpersonnel who deliberately siphon off office wherewithal for personal gains. 2
  2. 2. Reflections by Thought Leaders “Whoever is careless with the truth in small matters cannot be trusted with important matters”  ― Albert Einstein 3
  3. 3. About Corruption  Corruption can occur on many different scales. There is corruption that occurs as small favors between a small number of people (petty corruption), while there is corruption that affects government on a large scale (grand corruption), and corruption that is so prevalent that it is part of the everyday structure of society (systemic corruption).  Corruption occurs through myriad methods. The use of both positive and negative inducements to encourage the misuse of power is well known. In addition, favoring of friends, relatives and cronies in a way that is not directly beneficial to the corrupt individual is a form of corruption.  Corruption at workplace occurs when responsible executives of a Company misuse their position for personal gain, for example, by accepting bribes or by charging personal expenditure as official expenses.   Multiple methods of corruption are used like Bribery, Fraud, Embezzlement of funds, Kickbacks, Blackmail, Forgery, Illegal Transactions, Cheating, etc. 4
  4. 4. Few Examples Of How This Happens (1/2)  Taking commission payments from suppliers to grant contracts.  Vendors and Suppliers often resort to giving nice gifts, free vacation, etc. to win contracts.  Business managers sometimes enter into arrangements with suppliers to inflate price to the company, while the supplier and the manager would share the spoils of the overinflated pricing on the side.  Inflated stationery bills, bogus vehicle hiring bills, claiming personal fuel reimbursement as official expenses, etc. are quite common  Employees at retail stores steal products (classified formally as shrinkage), give lower discount to customers & pocket the difference, wear company products for attending parties & then put them back on the shelves next day; and sometimes even buy cheap fake products locally to sell those through company branded stores. 5
  5. 5. Few Examples Of How This Happens (2/2)  Create dummy employee/vendor accounts and transfer salaries/fees to the same, at regular intervals.  Buy products for deals, and pocket free gifts /add-ons.  Undertake avoidable Business Travel for personal reasons / Fly on an expensive ticket, to receive free companion ticket or to add on frequent flier miles.  Office Affairs – Undertake avoidable travel and business lunches.  Deposit client receipts in personal account and treat the client account as bad debt, write-off or provide discounts, issue credit notes.  Siphon off company gadgets/devices for personal and family use.  Theft through collusion by several employees and outside parties. 6
  6. 6. Reflections by Thought Leaders “If you once forfeit the confidence of your fellow citizens, you can never regain their respect and esteem. It is true that you may fool all of the people some of the time; you can even fool some of the people all of the time; but you cant fool all of the people all of the time. -Speech at Clinton, Illinois, September 8, 1854.”  ― Abraham Lincoln 7
  7. 7. Who Is Most Vulnerable ?  According to a recent survey we conducted on the subject, we were told that employees from Sales & Marketing department were most vulnerable to bribery/corruption followed by Procurement.  Also 53% of the survey respondents said that those employees who have been with the company for a while and had acquired trust were the most vulnerable of the lot. 8
  8. 8. Why Does This Happen ? (1/2) Poor financial condition of employee. Salary levels not compatible with work pressures and personal lifestyle. Existence of conflict of interest in business relations, and it goes unreported. Unequal enforcement of rules – Rules should be applied universally across theorganization. Unequal enforcement of rules creates a sense of unfairness amongemployees. Lax in Company’s internal controls – At organizations, where company’s internalcontrols are weak, even the employees at the lower most level are able to executefraud with little understanding of the system. Poor HR Management: People management is very important in all companies. Ifworking atmosphere is hostile, employees are tempted to do something wrong, notjust for personal benefit, but to teach a lesson to the company management. 9
  9. 9. Why Does This Happen ? (2/2) Poor execution of rules, regulations and procedures – Good written and strongprocedures are not enough. Ongoing supervision of execution and effectiveness ofthese procedures is equally pertinent. Greed. There is no end to greed once it starts and gets fuelled if not caught withpetty theft. Commissions/kick-backs paid by companies involved in Government dealingsoften creates the climate for internal corruption as also the cash culture in manyorganizations which is also one of the main causes for breeding internalcorruption‘. Sometimes mere urge to steal to beat the system.….many more…… and as someone rightly said, it is difficult to understand ahuman mind! 10
  10. 10. What Should One Do To Curb The SameImplement Strong Policies and Procedures (P&P) Have well thought policies and control systems makes it difficult for someone tocommit a crime. Many companies have benefitted by having a comprehensive AuthorizationMatrix. Another important area is controlling procurements. In a recent survey that we conducted, 76% respondents confirmed havingimplemented various policies & procedures (for e.g.  An Authorization Matrix, aProcurement Policy, etc.) to keep a check on any leakage/misuse of the authority. It is not a one time exercise, but a process, where one has to constantly evaluateeffectiveness, identify gaps and make necessary amendments to ControlProcedures. 11
  11. 11. Reflections by Thought Leaders “Honesty is the first chapter in the book of wisdom.”  ― Thomas Jefferson 12
  12. 12. Entrepreneur Quotes “Chances of corruption are least in organizations driven by processes and systems.However, corruption at higher levels is a serious issue considering these are the ones withpower to bypass systems. In my opinion no one must be above the system and policies of thecompany” “It has been reasonably effective. The monitoring controls have been lacking, dependenton specific management culture.” “They are effective. They reduce the chance of misuse of authority.” “Policies and procedures can work well but are inadequate where collusion is involved. Amore robust and direct approach is required as well as strong relationships with employees,customers and suppliers.” 13
  13. 13. What Else Can Help You Curb The Same  Surprise Checks / Audits.  Background Verification.  Strict Action/Penalties for the Wrong Doers.  Rotating Jobs / Responsibilities.  Whistle Blower Policy, Incentivizing Informers.  Regular Counseling and Good HR practices.  Mystery Audit. (as a Shopper / Client / Vendor)  Taking sign-offs/confirmations from employees and vendor/client that no bribe, in any form, has been received/paid. Keeping a tab on office grapevine. Good Independent Directors. 14
  14. 14. Warning Signals If you are alert, you can quickly spot warning signals of a potential or an ongoing fraud/corruption. Following are few such examples:  If an employee never takes a day off.  Extravagant spending, beyond one’s earning capacity.  Sudden change in working habits – e.g. working late after office hours, even without a lot of workload.  If an employee prefers working independently without any supervision, and gets agitated when proposed one.  Rising shrinkages, increase in procurement costs, increase on Credit Notes.  Employee is seen excessively socializing with a vendor or defends a particular vendor aggressively even for significant shortcomings. 15
  15. 15. Reflections by Thought Leaders “I will not let anyone walk through my mind with their dirty feet.”  ― Mahatma Gandhi 16
  16. 16. Top 15 Phrases Used By Fraudsters According to research conducted by Ernst & Young (E&Y) with FBI, following terms are frequently used by employees in emails, when discussing fraud: With good use of technology, a Company could set-up a mechanism to search emails and other communications for these keywords. 17
  17. 17. How can we help You It is very important for a Company to have good Policies, Processes and Controls. But most important of all is to have a very good Finance, Legal and Compliance team to support various initiatives. Should you ever need a good resource in this domain, whether full-time, part-time, or on an interim basis, write to us at 18
  18. 18. Disclaimer Information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. This document has been prepared in good faith, on the basis of information available at the date of publication without any independent verification. SuperCFO does not guarantee or warrant the accuracy, reliability, completeness of the information in this report nor its usefulness in achieving any purpose. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation and also acknowledge that any reliance upon any such opinion, advice, statement or information shall be at your sole risk. Readers are responsible for assessing the relevance and accuracy of the content of this report. SuperCFO will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this report. 19
  19. 19. Thank You SuperCFO Services Pvt. Ltd. 104, Marathon Max, Mulund - Goregaon Link Road, Mulund (West), Mumbai: 400 080, India. Phone: + 91 22 259 26052 / 57 Email: Website: www. Follow Us: 20