Competition and Kickbacks: Detecting Favoritism and Unethical Behavior

November 2014

IN THIS ISSUE

— Seeking an Edge: Why Kickbacks Occur
— How to Identify Kickbacks and Other Illegal Schemes

GREETINGS!

Welcome to the November edition of our newsletter! In this issue, we’ll examine the potential for kickbacks and other preferential treatment to arise in today’s competitive business landscape.

SEEKING AN EDGE: WHY KICKBACKS OCCUR

Given the competitive nature of many businesses, whether selling products or services, vendors are looking for any way to distinguish themselves from their peers. Ideally, this distinction begins and ends with the ability and willingness to deliver a superior product in a timely manner. Yet all too often this mindset is not enough, and vendors eager to earn a potential client’s business entertain offering a key contact “sweeteners” — whether cash or other services — to close a deal.

The key employees who make business decisions, in turn, often feel empowered by that circumstance, and may demand various forms of kickbacks, whether payment of a child’s tuition, an automobile or a silent partner equity stake in the vendor company itself. Any of these examples would be considered a bribe or kickback, which could ultimately harm the client company and its reputation.

HOW TO IDENTIFY KICKBACKS AND OTHER ILLEGAL SCHEMES

When looking at a kickback scheme from the perspective of the management/employee who is dictating the terms, a financial analysis due diligence, supplemented by interviews, can be helpful. Has the person obtained a new sports car recently, or bragged to a co-worker about putting an addition onto their house? Leads from interviews, as well as from initial public record searches, can be fleshed out by looking at building permits, recent car registrations, and the like. Patterns of behavior, such as meeting a preferred vendor on a more frequent basis, can be determined by reviewing the employee’s e-mail, telephone records, and expense or travel reports. Also important are vacation and sick leave usage, which can suggest whether an employee was using this time to arrange meetings.

When looking into a vendor suspected of offering kickbacks, a public record search can be an instructive start. Have similar allegations surfaced in the past? Has the vendor been sued previously (or received complaints) for failing to deliver as promised? If so, this could be one indication that an understaffed vendor favored one client over another, which could indicate a time frame as to when a kickback scheme began. By looking at public records, including an asset profile or the vendor company and its principals, you can begin to determine whether any inappropriate behavior has transpired, and when comparing that information to records concerning a suspected employee, can begin to build a case concerning a kickback scheme.