3 Ways to prevent conflict of interest from damaging your profits

Posted By putri Articles due diligence, prevention, recruitment

Conflict of interest is intrinsic to human life and is often the root cause when it comes to fraud cases that involve corruption and bribery. According to Transparency International, a conflict of interest is a complex and sometimes ungraspable concept. Merriam-Webster defines the terminology as a conflict between the private interests and the official responsibilities of a person in a position of trust.

An example of a situation in an organization would be a member of the board directors that works part time as a consultant for a company that competes with the company that the board member sits in. There are many more examples that could fall within the definition of conflict of interest.

As conflict of interest results in costly fraud cases, organizations should take measures to minimize potential of conflict of interests from arising and prevent it from morphing into fraud. This could be done through enhancing transparency, accountability, and integrity.

Background check on the job candidate

Conducting a background check is important, primarily when your organization is hiring an employee for a strategic position in which conflict of interest is likely to happen. The reverse directorship check and Politically Exposed Person (PEP) are parts of a background check that must be performed before finalizing the hiring decision.

Both checks can help your organization to identify any potential conflict of interest by the candidate. By conducting the PEP check, for example, your organization can identify if the candidate is registered as a member of a political party or legislative which may create a situation where a conflict of interest might arise in your organization.

Integrity Indonesia provides background screening services. Our screening is conducted through Prisma, our proprietary screening platform that can be integrated with our client HR information systems.

Segregation of duty and due diligence

Many organizations, companies in this case, can agree that the purchasing department is vulnerable to what we call “vendor fraud”. A conflict of interest could lead to fraud that involves the vendor and employee. An example would be if a purchasing manager accepts a gift from a supplier and awards the supplier a contract.

First, with a segregation of duty, there would be a clear division between the employees who receives goods/services, who processes the payment and who reconciles the bank account. Second, conducting due diligence would uncover any potential risks on the vendor.

Integrity Indonesia offers you a due diligence service through Know Your Vendor™. Our solution helps our clients mitigate supply chain risks by providing a consolidated panorama for due diligence on third parties. In addition, as the Indonesian government has set the Anti-Bribery Management System as a corporate liability standard, due diligence has become a requirement.

Transparent culture

Organizations should manage any potential conflict of interest through transparent communication. In a transparent culture, organizations would maintain adequate record systems, educate its employees about conflict of interest, and encourage employees to report any red flags of any potential conflicts and of the fraud stemming from these conflicts.