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The Fine Line between Conflicts of Interest in Business Relationships and Corruption

A requirement to declare and document a conflict of interest is an integral part of an organisation’s compliance framework. So why does it continue to be a significant risk for many organisations?

conflicts of interest compliance vs management

Fundamental honesty is the keystone of business


Designing prevention strategies is integral in the fight against fraud and corruption. The simple act of introducing a requirement to make conflict of interest declarations can have a number of positive results, not only in protecting an organisation from inappropriate or illicit personal and professional relationships but also protect its reputation and its employees from the inference of impropriety where such conflicts are identified or reported.


THE INSIDER THREAT

The insider threat continues to be highlighted as one of the key risks that an organisation may face from data theft, asset misappropriation or money laundering, and when we look at procurement fraud and corruption linked to influencing vendor selection and award of contracts, areas of conflicts of interest can have significant financial or reputation impact when they are uncovered.


An area of verification and detection is at the vendor vetting and onboarding stage and is generally one of the main points at which conflicts of interest are assessed, checked and validated.


CONFLICTS OF INTEREST EXAMPLES

There are several areas of conflict of interest that should be known by organisations particularly by individuals whose role it is to protect the organisation from this risk, whether it is in procurement policy compliance and monitoring any manipulation of the procurement route or the tender board and the manipulation of scoring, conflicts of interest are always high risk and one of the key areas where procurement fraud and corruption risk can hide.

  • Cronyism and the improper influencing in the award of a contract to a friend are not unusual particularly if the individual is a senior public or government official.

  • Nepotism and the granting of favours to family in a commercial or political setting can be common for individuals in positions of power or influence.

  • Tribalism and loyalty to individuals or groups

  • Revolving door is also a common risk where individuals move in and out from the public sector to the private sector. The business links and loyalties they have or in many cases where individuals in the public sector are looking for employment in the private sector, use their position in influencing procurement in an attempt to ingratiate themselves with a potential new employer. This can be seen where individuals share sensitive commercial data with a bidding company or to influence a procurement route from competition to single source. On many occasions, such a hidden relationship may only comes to light when an individual goes to work for a supplier.


THE VALUE OF CONTROLS

On many occasions, governance and failure in conflicts of interest verification and controls can be tracked to organisation management and their attitude towards compliance. Compliance can be seen, on occasions by management as a hindrance to getting things done and the perception that it causes delays.





When it is clear that the executive pays little attention to non-compliance with organisation policy and procedures, at what point does it become a culture that ultimately undermines any reprimand for breaching the policy.


The Association of Certified Fraud Examiners highlight in their annual report to the nations that in a third of the 2504 cases of fraud assessed that a third of cases were caused by control weaknesses.


The value of conflict of interest controls can’t be overstated, they not only act as a preventative measure in highlighting to staff and vendors that your organisation takes a strong stance against fraud and corruption, but it also creates an environment where unusual behaviours such as unexplained or unusual favouritism towards a particular contractor or vendor raise suspicion.


Areas such as excessive gifts and hospitality or employee personal relationships with vendors or contracting or purchasing staff living beyond their means, suddenly take on a different meaning. Checking new vendor data at the onboarding process against staff and supplier information may indicator a bigger risk of corruption or collusion between suppliers.


PREVENTION THROUGH DESIGN

Leaders must set the example for compliance and the culture and attitude toward conflicts of interest and anti-corruption. Lapses in judgement and influencing procurement policy for the benefit of a friend or family member can have significant reputation damage to an organisation should such findings become public.


Protecting organisation and national revenues must start with individuals written declaration outlining professional or financial relationships that might impact their role or the organisation and are the foundation on which governance frameworks are built.


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