Question

The kickback is a form of fraud often associated with purchasing. Most organizations expect their purchasing agents to select the vendor that provides the best products at the lowest price. To influence the purchasing agent in his or her decision, vendors may grant the agent financial favors (cash, presents, football tickets, and so on). This activity can result in orders being placed with vendors that supply inferior products or charge excessive prices. 

 

Required 

Describe the controls that an organization can employ to deal with kickbacks. Classify each control as preventive, detective, or corrective.

Answer 1

KICKBACK FRAUD

Preventive Controls

• Implement an organization policy prohibiting kickbacks.

• Establish a code of ethics within the organization that outlines the boundaries of unethical behavior. Require all employees to sign the code.

• Establish a list of valid vendors from whom the agent must place orders for merchandise. Orders from vendors not on the list must be formally approved by the agent’s supervisor. 

 

Detective Controls

• Prior to making payment to the vendor, the amount to be paid should be compared to the amount expected (based on historic data) to determine its reasonableness. 

• Prior to making payment, the authenticity of the vendor should be verified against the valid vendor file. 

Corrective Controls

• Discrepancies detected above should be evaluated by an independent manager before payment to the vendor is authorized.

• If it is found that the purchasing agent violated the code of ethics or company policy, appropriate disciplinary action should follow. This may include, censure, suspension, dismissal, or even possible criminal charges.