For a decade, Dhirendra Prasad worked primarily as a buyer in Apple Inc.’s Global Service Supply Chain department. As far as Apple was concerned, Prasad’s job was helping buy parts and services to repair older devices. Trusted and well-paid, the 50-something Californian was granted substantial freedom to make decisions that would benefit the company.
Unfortunately for Apple, Prasad saw his job very differently. According to prosecutors, for seven of his 10 years with Apple, Prasad colluded with two vendors to take kickbacks, steal parts, inflate invoices, and cause Apple to pay for items and services it never received. Before they were caught, Prasad and his co-conspirators had scammed more than $17 million out of the company.
Prasad was sentenced in April to three years in prison and ordered to pay restitution for fraud and tax evasion. His case provides a not-so-gentle reminder to employers that even in the most sophisticated of organizations, constant vigilance is necessary to prevent and root out employee corruption and collusion.
In this post, we look closely at what constitutes corruption and collusion and review several practical, proactive steps organizations can take to protect themselves.
What Are Corruption and Collusion?
First, let’s clearly define what we mean by corruption and collusion.
• Corruption is the dishonest, fraudulent, or criminal act of an individual or organization who has been using their position of trust and authority for personal gain or for other unethical or illegal benefits. Think bribery or kickbacks.
• Collusion occurs when two or more parties agree in secret to defraud another party or to accomplish an illegal purpose.
Returning to our example at Apple, Prasad had a position of trust and authority that was ideally placed to create a scheme, engage and collude with conspirators, and evade detection for several years.
According to an article by Ars Technica, Prasad had the authority to request quotes from vendors, negotiate prices, and choose who got the business. With this power, Prasad could “put his thumb on the scale,” the article noted, giving the companies of his co-conspirators “a leg up in exchange for something on the side.” To avoid detection, prosecutors said Prasad used his insider information regarding the company’s fraud-detection techniques and design his criminal schemes accordingly.
Preventative Steps to Fight Corruption and Collusion
Preventing corruption and collusion requires a comprehensive approach that includes both preventive measures and a proactive response plan. By taking these steps, organizations can reduce the likelihood of corruption and collusion and better protect themselves from the negative consequences of unethical behavior. Here are five preventative measures that can be implemented to help prevent corruption and collusion in your organization.
- Implement a code of conduct. One of the most effective ways to prevent corruption is to create a code of conduct that outlines the organization’s values, standards, and expectations of behavior. This code should be communicated to all employees, and they should be required to sign an acknowledgement that they have read and understood it.
- Conduct background checks. Conducting background checks on potential hires can help identify any previous involvement in unethical or illegal activities. Additionally, conducting periodic checks on existing employees can help detect any changes in behavior or new risk factors that may make them more susceptible to corruption and collusion.
- Separate duties. Separating duties among different employees can help prevent corruption and collusion by ensuring that no one individual has complete control over a process or transaction. This can involve dividing tasks and responsibilities among different employees and creating checks and balances to ensure that all steps in a process are properly executed.
- Implement a whistleblower policy. A whistleblower policy provides employees with a mechanism for reporting suspicious behavior or activities without fear of retaliation. It can help identify employee wrongdoing early before it causes significant harm to your organization.
- Provide ongoing training and education. Ongoing training and education can help employees understand the importance of ethical behavior and the consequences of financial fraud. It can also help employees identify potential risks and warning signs of collusion and provide them with the tools they need to report suspicious behavior. And it can send a message that the company takes these issues seriously and is on the lookout for fraud.
Methods of Detection
Collusion routinely involves secret cooperation among parties, which makes it all the more difficult for organizations to detect. Here are three methods that can help:
- Analyze financial transactions. Financial analysis can help detect patterns or anomalies in transactions that may suggest collusion. Look for signs such as unusual payment patterns, round figures, or payments made to unfamiliar vendors or accounts.
- Conduct surprise audits. Surprise audits can catch employees off guard and potentially uncover suspicious behavior. Randomly selecting transactions or processes to audit can help identify any irregularities or discrepancies that may be indicative of corruption and collusion.
- Monitor employee behavior. Keep an eye on employees’ behavior, particularly if they are in positions of trust or have access to sensitive information or assets. Look for signs such as changes in lifestyle, unusually close relationships with other employees, or unexplained absences.
No single method is foolproof, and detecting corruption and collusion often requires a combination of one or more of these methods. Organizations must also be proactive, implementing these measures before they suspect something is wrong and regularly monitoring them. If they do, they can substantially increase their chances of detecting and thwarting corruption and collusion.