Kickback, a practice prevalent in the business world
“Kickback” is a term that is often heard and prevalent in various industries and manifested in various forms. It is essentially a form of bribery, often involving financial incentives or other benefits for someone as a reward for their help with something. This illegal act is a serious problem that can undermine the integrity of businesses and markets.
Kickback practices often occur in various industries, such as construction, especially during the tender process for infrastructure projects. The healthcare industry is also not immune to this problem, especially in the procurement of medical equipment for hospitals. In the insurance industry, salespeople conspire with decision-makers to provide kickback rewards to secure business deals.
The impact of kickbacks on businesses
Firstly, kickbacks influence a person’s decision to favor a party that benefits that person instead of befitting the company he/she works for. Let’s take the case of an HR manager who has the task of choosing an insurance vendor for his employees.
Secondly, kickbacks can also result in increased business costs. There may be other insurance companies that offer more affordable insurance premiums with greater benefits, but since the HRD manager has ‘an attachment’ to one of the insurance companies, the company is ultimately forced to pay more to the ‘attached’ insurance company.
Thirdly, businesses that participate in kickbacks may suffer reputational damage as a result of being deemed to be engaging in unethical and unlawful acts. As a result, customers, investors, and other stakeholders may lose faith in them.
Finally, businesses may suffer legal implications like fines, sanctions, or even criminal accusations.
Detecting and preventing kickbacks
Detecting kickbacks can be challenging as this type of fraud is a collusion between multiple parties. They are usually hidden within legitimate business transactions, therefore the money trail is often untraceable.
For example, kickbacks are often disguised as part of a sales commission scheme, making them difficult to distinguish from legitimate payments. Typically, the perpetrator hides the money trail by transferring the money to an account in someone else’s name.
However, there are steps that companies can take to address this kind of fraud:
- Implementing a strict procurement process. Companies can implement strict procurement processes, such as requiring sealed bids for purchases above a certain amount and ensuring that bids are opened in the presence of authorized personnel. This can help prevent kickbacks from vendors that are looking to secure contracts.
- Periodically auditing procurement and payment processes involves checking for suspicious financial transactions and identifying signs of fraud
- Establishing a whistleblowing system. This system allows individuals to report suspected fraudulent activities. However, it is very important for the company to provide confidentiality guarantees. Canary Whistleblowing, a whistleblowing platform that comes with the Canary Mute feature allows anonymous reporting which ultimately provides a sense of security and comfort for individuals to report.
- Reviewing SOPs. For example, conducting thorough due diligence in the selection of vendors and contractors. This includes assessing their reputation, track record and compliance with anti-corruption laws and ethical standards. Implementing a robust vendor vetting process to ensure that only reputable and ethical vendors are engaged.
- Conducting employee monitoring of some positions that are vulnerable to kickback temptation.
By taking these steps, companies can protect their integrity and also promote better business ethics in their business environment.
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