Bribes and kickbacks are among the most common and damaging of economic crimes, especially in development projects. They can lead to the selection of unqualified suppliers, increased prices, unnecessary purchases and lower quality goods and services, and facilitate other frauds, particularly bid rigging and inflated invoices.
Such offenses are widely considered to be very difficult, if not impossible, to prove, by NGOs and other private sector organizations that lack law enforcement powers. This is not true; with adequate experience and careful planning such cases can be, and many have been, proven with reasonable effort.
A short summary of a typical approach to a kickback investigation, without the benefit of subpoenas or other powers to compel evidence, is set out below.
The first four steps listed below can be conducted in-house and are intended to identify potential payments and guilty parties. The last three steps are designed to prove the actual payments through documents collected from the vendor and interviews of the suspect payer and recipient. The most critical factor for success is to gain access to the financial records of the suspect vendors, as described below.
Much more detail is available at the Guide to Combating Corruption and Fraud in Development Projects: https://guide.iacrc.org and https://guide.iacrc.org/potential-scheme-corruption/.
Obtain legal advice and consult the relevant HR rules and regulations as necessary.
1. Thoroughly debrief a whistleblower
Don’t rely simply on the information in the original message; whistleblowers almost always have more information than they initially disclose. See https://guide.iacrc.org/how-to-respond-to-a-complaint/
2. Collect the following documents and information from the procuring entity (the organization that employs the person suspected of receiving the kickback); adjust the list depending on the allegation or suspicion and circumstances:
a. Procurement documents, such as purchase orders, requests for bids, bids, change orders, etc. depending on the specific allegations or suspicions. Look for unusual favorable treatment of a particular supplier and other indicators, such as the SPQQD indicators:
S Improper selection procedures that favor a certain company
P Unreasonably high priced purchases
Q Unreasonably high quantity of purchases from a certain supplier
Q Low quality purchases
D Delivery of items that do not meet specifications, etc.
b. Contract and payment records; note the bank account information of the suspect vendor (s).
c. Invoices from the suspect vendor; match to the purchase order or contract and note discrepancies (a corrupt employee may accept kickbacks to accept over-priced or lesser quality goods.)
d. Computer hard drive of the suspected recipient; use special software, such as EnCase or FTK, to recover deleted content.
e. Emails (very important), text messages and telephone calls between the vendor and procuring entity, as permitted. The subject may attempt to delete incriminating messages, so also look for and recover deleted content.
3. Interview procurement personnel who are not suspected of involvement in the wrongdoing to understand the transactions and confirm the possible indicators or evidence of wrongdoing
4. Do background checks on the suspect vendor and employee, e.g.,
a. Is the vendor a real company? Is it qualified to do the work?
b. Does the suspect employee or a relative own or have an interest in an undisclosed business?
c. Does the employee display recent wealth or live beyond his or her means, e.g., own expensive real estate?
See https://guide.iacrc.org/due-diligence-background-checks-on-firms-and-individuals/ for more information.
5. Evaluate – is there adequate predication to continue the investigation?
Is there a sufficient factual foundation to believe that kickbacks might be present? If so, continue the investigation.
6. Obtain the following documents and information from the suspect vendor:
Obtain the following records by request or the exercise of contract audit rights. The investigating entity also can file a civil suit or make a criminal referral to get access to subpoenas and court orders for documents and information from the suspect vendor, banks and other third parties:
a. Payment records: look for suspect payments, e.g. unusual round number amounts, payments without supporting documents, payments to companies that cannot be identified or to companies linked to the suspect recipient, etc.
b. Invoices from the suspect vendor: look for false and inflated invoices: compare the vendor’s delivery records to its invoices and note discrepancies.
c. Records of cash payments: see “How to prove illicit payments in cash:” https://guide.iacrc.org/how-to-prove-illicit-payments-in-cash
7. Interview the suspect payer
Request an explanation and documentation for the suspect payments.
In appropriate circumstances, solicit the cooperation of the suspect bribe payer by suggesting that the kickbacks may have been demanded or extorted by the procurement officials and offer to settle claims against the vendor on a favorable basis in exchange for its full truthful cooperation, including information on any corrupt payments.
It also may be effective to use evidence of fraud (for example, the submission of inflated or fictitious invoices used to generate the funds for the kickback payments) to negotiate for the cooperation of the vendor; again, suggest that the investigation may be settled on a favorable basis in exchange for full cooperation. Evidence of fraud is usually easier to collect than evidence of improper payments and can be properly used to sanction the offender, which, of course, many companies are anxious to avoid.
Both of these approaches have been used successfully in many investigations in international development cases.
8. Interview the employee suspected of receiving the kickbacks
Request relevant business and personal financial documents; note that employees have a fiduciary duty to cooperate in a good faith investigation.
An in-depth description of the steps required to prove complex corruption cases can be found at https://guide.iacrc.org/10-steps-of-complex-fraud-and-corruption-investigation/.