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Conflict of interest can be found at every level of business: A commonly used cliché, “Good Old Boys” can be applied here. The problem is that unfairness inherent in conflicts of interest is rarely recognized. Establishing awareness of conflicts of interest is therefore the greatest challenge to those responsible for corporate compliance.

Definition

When an employee at any level, or a contracted third party that provides a service to a company, has an undisclosed economic or personal interest in a business transaction, and the transaction would give that employee or service provider an advantage over the company; often at the disadvantage of the company, a conflict of interest exists. Conflict of interest situations differ from bribery as in bribery an employee receives something of value from a third party to decide in favor of the third party in business transactions or to provide unauthorized business information. However, in a conflict of interest scheme, a dishonest employee diverts routine purchases of goods and services to a business in which the employee has an interest for direct profit or personal reasons.

Who does it?

Basically, any employee who has the authority to purchase goods and services for the company, or has influence over the decision can complete a conflict of interest scheme. Instinctively compliance professionals focus on lower level employees. However, employees in the purchasing and/or receiving department, and mid to executive management are best situated to profit from conflict of interest schemes. More than half of fraud cases reported in 2016 were committed by senior managers and executives. Senior managers and executives are in the position to obtain information regarding the company’s plans to buy goods and services, and are often in the position to influence the decision who to buy from.

Conflict of Interest: How is it done?

Conflict of interest is the perfect playground for nepotism and personal favors. The most common schemes are:

  • Purchasing Schemes
  • Sales Schemes
  • Business Diversion Schemes
  • Resource Diversion Schemes

Purchasing Schemes

Purchasing schemes entail a conflict wherein an employee has an economic or personal interest in the goods and services offered to their company by either owning the vendor company in part or whole, has an employment interest in the vendor (To get a position for themselves, a relative or friend later).

Case in Point

In January 2017, a former federal contracting officer, was indicted and plead guilty of awarding a contract in excess of $22,000.00 to a company partly owned by his spouse. Records review indicated that his wife was part owner of the business that received the contract, and that the address of his wife’s company was the address of their home.

 

Sales Schemes

When an employee causes the company to under-sell goods and services to a company that the employee owns or has an interest in, this is termed as a “Conflict of Interest Sales Scheme”.

  1. One version of this form of scheme is the “Under Billing Scheme” wherein the employee causes his/her company to under charge for goods sold to a company that the employee owns or has an interest in.
  2. A second method of Sales Scheme is the “Writing-off Sales Scheme”. In this scheme, the employee manipulates the company’s books to decrease or write off the sum that his business, or the business in which he has an interest, owes the victim company.

Business- and Resource - Diversion Schemes

The uniqueness of a conflict of interest through a ” Business Diversion Scheme” is that it is difficult to detect, takes little effort, and the employee involved does not attack company assets directly. This scheme occurs when the employee refers clients of his employer to a competing business to which the employee has an interest: In short stealing business from his employer.

Embedded in theft, “Resource Diversion Schemes” regarding conflict of interest find the employee diverting funds and resources from his employer to support the employee’s business interest in another company. In short, the dishonest employee runs a business at the expense of his employer.

The Harm Caused

Some would argue that the victim company is not harmed in most conflict of interest schemes. On the contrary, conflict of interest hurts all industries as competitive prices are lost, companies often pay higher prices for goods and services, and essential trust between employer and employee is violated.

Detection and Prevention of Conflicts of Interest

Detecting and preventing conflicts of interest requires detailed work and planning for compliance professionals.

Forms of Detection Include:

  • Tips and Complaints: This is a primary source of information on conflicts of interest- more than audits.
  • Comparison of Vendor Addresses with Employee Addresses.
  • Review of Vendor Ownership Files: This must be done in detail using public sources of information.
  • Review of Purchase Orders: With a view toward repeat orders from vendors or vendors receiving preferred treatment.
  • Review of Financial Disclosure Statements Employees with Influence over Purchasing: Strict review and verification of the information given.

Forms of Prevention Include:

  • Implement Internal Controls against Conflicts of Interest
  • Implement Policies that Require an Annual Disclosure of Financial Interest
  • Implement Thorough Background Investigations of Vendors with an Annual Review of Ownership
  • Conflict of Interest Awareness Training at all Levels

Conclusion

Conflict of interest should not be taken lightly, nor viewed as something that is impossible to prevent and detect. The cost of conflict of interest to businesses in terms of resources and reputation is far too great, so it cannot be ignored. Strong and open cooperation between compliance personnel and senior management is the key to preventing losses due to conflicts of interest. As in all fraud aspects of daily business, the senior management must understand the problem, communicate the problem to all employees, set the example, and participate in resolving the issues and establishing the moral strength and integrity culture of the company = this will prevent conflicts of interest.

German Summary

Interessenskonflikte gibt es auf jeder Geschäftsebene. Ein oft dafür gebrauchtes Synonym ist auch die „Vetternwirtschaft“. Problematisch ist, das darin enthaltene Unrecht wird meist nicht erkannt. Dieses Bewusstsein zu stärken ist eine der größten Herausforderungen für den Compliance-Verantwortlichen.

Definition

Ein Interessenskonflikt entsteht, wenn ein Mitarbeiter oder Dienstleiter ein persönliches Interesse daran hat, einen Vorteil aus einer geschäftlichen Transaktion zu ziehen, z.B. zum Nachteil seines Arbeitgebers/Auftraggebers.

Wie entsteht ein Interessenskonflikt?

Es gibt viele Arten die zu betrügerischen und unmoralischen Handlungen von Mitarbeitern führen. Die häufigsten Methoden sind:

  • Ein- und Verkaufs-Betrug: Ein Angestellter hat nebenbei noch seine eigene Firma und kauft oder verkauft seinem Arbeitgeber seine Produkte zu entsprechenden Preisen.
  • Kundenklau“

Welches Schadensausmaß steckt dahinter?

Oft wird argumentiert, dass es keinen tatsächlichen Schaden gibt. Allerdings wird der freie Wettbewerb beeinflusst, Unternehmen zahlen höhere und meist ungerechtfertigte Preise und zudem wir das Vertrauen zwischen Arbeitsgeber und Arbeitsnehmer verletzt.

Gegenmaßnahmen:

  • Hinweise und Beschwerden: die beste Informationsquelle
  • Vergleich von Zulieferer- und Mitarbeiter-Adressen
  • Prüfung und Backgroundchecks der Zulieferfirmen
  • Erstellung von Richtlinien gegen Interessenskonflikte
  • Erstellung von Protokollen für „Jährliche Offenbarung von Finanziellen Interessen“
  • Interessenskonflikt-Bewusstseinstraining für alle Mitarbeiter
  • Unterstützung durch die Geschäftsführungsebene

Zusammenfassung

Interessenskonflikte sollten nicht auf die leichte Schulter genommen werden, oder als unmöglich zu verhindern oder aufzudecken betrachtet werden. Eine gelungene Kooperation zwischen der Geschäftsführung und den Compliance-Mitarbeitern ist der Schlüssel zur Verhinderung und Aufdeckung von Interessenskonflikten.

Schlagworte zum Thema:  Interessenkollision, Compliance, Compliance-Officer, Korruption, Betrug

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