Yes, corruption is fraud. Corruption exists when an individual or group intentionally acts dishonestly, resulting in another suffering a loss. There are several different forms of corruption, each fascinating in its way. Corruption, like all fraud, is not a victimless crime. Although we often think of corruption in relation to politicians, it can be committed by anyone in a position of power.
Collusion is an agreement between multiple parties to do something that will result in one or more participants receiving an unfair advantage. Collusion is a factor in bribery and kickbacks.
Business gifts may be considered illegal gratuities if the receipt of the gift influences a decision. Optics is the primary concern in this type of fraud. Is the value of the gift significant enough to appear to be influencing a decision? If so, there’s cause for concern that the gift may be an illegal gratuity. Some companies and governments have created policies to address this concern.
Bribery is a form of corruption that many understand. Official bribery is when a public official benefits from influencing a decision. Commercial bribery is when a private individual or business benefits from influencing a decision. Official bribery is illegal in Canada and in many other countries. The UK Bribery Act and the US Foreign Corrupt Practices Act are two powerful pieces of legislation enacted to address official bribery.
Corruption is a type of fraud.
Kickbacks are another form of corruption that many understand. Kickbacks are undisclosed payments made to receive favourable treatment, typically involving an employee and a vendor. One way to think about kickbacks is priority placement of merchandise from a vendor in exchange for the vendor making an undisclosed payment to the store manager.
Conflict of interest occurs when an individual has an undisclosed personal or economic interest in the outcome of a decision made in their official capacity. As with collusion, conflict of interest may be a factor in other forms of corruption. In this type of fraud, the fraudster does not have to be the beneficiary of the decision. If a relative, business or interest of the individual benefits from the intentionally undisclosed action of the decision maker, it is a conflict of interest.
Kathleen O’Donoghue, CFE
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