Collusion and Conflict of Interest in Compliance

Corruption can take many forms, but its root causes often include a conflict of interest and possibly some type of collusion. In this episode, we’re illustrating these concepts and how they intertwine, and what you can do to proactively make sure your organization is secure. Where there is collusion, there may also be a conflict of interest While this type of fraud doesn’t necessarily involve a third party, it does involve the employee. In this case, they’re using their role as an employee, but acting outside their capacity to collude with another party for their personal benefit. Fraud generally involves an act of concealment, but frauds that include collusion usually occur off the books. There’s nothing to conceal as there is nothing on record. In this instance, the concealment is in not disclosing the potential conflicts of interest — which can present significant fraud risks. There are guidelines for this, like the ICC Guidelines on Conflicts of Interest in Enterprises, that recommend close monitoring and regulation of actual or potential conflicts of interest. The guidelines have examples, a discussion on communication and training, and four dilemma scenarios that are fantastic to use as a training aid. Some common conflict of interest schemes The Purchase Scheme involves overbilling a company for goods and services by a vendor in which an employee has an undisclosed ownership or financial interest. The Sales Scheme involves the underselling of company goods and services by an employee to a company in which the employee maintains a hidden interest. Activities that can create a possible conflict of interest Nepotism:the practice of giving favors to relatives and close friends (e.g. by hiring them) Cronyism: the appointment of friends and associates to positions of authority without proper regard to their qualifications Self-dealing: when someone in a position of responsibility has an outside conflict of interest and acts in their own interests rather than the interest of the organization Code of Conduct The Sarbanes-Oxley Act Section 406c requires that all US-listed companies maintain a code of conduct, and the New York Stock Exchange Corporate Governance Rules requires companies to adopt and disclose its corporate governance guidelines and code of business conduct and ethics. So if you’re a publicly traded company, your code of conduct must define conflicts of interest — a good policy, regardless. Final thoughts Conflicts of interest can be problematic if not understood and managed appropriately. They increase the risk of bias and poor judgment, and usually never end well. When it comes to fraud risk management, Compliance and Internal Audit need to understand conflicts of interest and address them accordingly. All conflicts of interest must be documented in writing and make sure there is proper monitoring in place, so that your company is proactively dealing with these issues. Resources ICC Guidelines on Conflicts of Interest in Enterprises The Sarbanes-Oxley Act of 2002 Sections mentioned:SOX Section 302SOX Section 906SOX Section 404 SOX Section 406SOX Section 406cNew York Stock Exchange Corporate Governance RulesCheck: Provision 10 Learn more about your ad choices. Visit megaphone.fm/adchoices