Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Q: Why are corruption and bribery frauds so difficult to discover?

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A: Because all the documents are outside the organization being defrauded.

When it comes to corruption and bribery, it only takes a little planning for a fraudster to keep all the papers that contain any trace of a fraud outside the organization.  A minimal amount of planning will mean there is no paper inside an organization that contains a hint of a problem.

I’ve discussed this issue using the example of an alleged fraud in the city next to where I live. The alleged part of the story is slowly turning to fact with one participant, the mayor, entering a plea agreement.

Now think about auditing the city.  All the pieces of paper that show any hint of the fraud are outside the city hall.  How would the city’s auditor find that?

Now think about working in the city’s internal audit or accounting departments or being a city manager.  How would you ever discover the fraud?

Look again at my previous comment:

The payment was disguised as a consulting contract to the cutout’s consulting business, according to the article. The payment was passed from the shaken-down business to the cutout’s consulting business to a construction company the mayor owned.  From outward appearances those contracts and the bribery payments would appear to be legitimate business deals.

All the contracts and flow of dollars were outside the city government.

(Hmmm. When you quote yourself should you put the comment in quotation marks? Nah, not today.)

Tracy Coenen goes into more detail explaining the difficulty in finding these frauds in her post, Bribery and Corruption: Difficult Frauds to Find.

She describes what bribery and corruption schemes often look like and gives other examples of off-book frauds.

There are still things that organizations can do to fight these kinds of frauds.

She suggests anonymous hotlines are a good tool.

Rotation of duties helps.

Watching for odd behavior of staff is another possibility, but is challenging itself since there are so many possible causes of odd behavior.

Check out her post for a deeper discussion.

Written by Jim Ulvog

May 3, 2012, 6:30 am at 6:30 am

Posted in Audits, Fraud

Tagged with , ,

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