A kickback is an illegal payment intended as compensation for favourable treatment or any other type of improper services received. The kickback may be money, a gift, credit, or anything of value. Kickbacks are often referred to as a type of bribery. The kickback are different from other kinds of bribes in that there is implied collusion between two parties, rather than one party extorting the bribe from the other. The purpose of the kickback is usually to encourage the other party to cooperate in the illegal scheme.
Vendor are often involved in kickback process by giving payments or other benefits to employees of organisation. Vendors provide free liquor party, trips, cars and cash etc.–all to guarantee that their bid will be accepted by organisation.
Let’s take an example how Vendor Kickback works-
Mr X is an employee in an organisation with the responsibility of obtaining quotations from vendors, negotiations and price finalisations. He also has responsibility of suggesting vendors for a particular work.
Mr X introduced a vendor YZ Limited in organisation by allotting work. YZ Limited is a known organisation of Mr X. Mr X assisted YZ Limited in quotations and shared internal information like quotes of other vendors etc. For a particular work of man power deployment which was allotted to YZ Limited, Mr X also manipulated attendance records, due to which excessive billing is done by YZ Limited. Mr X helped YZ in getting lot of work from organisation. In return YZ limited transferred a percentage of benefit it has obtained from organisation to Mr X.
Some major red flags of Vendor Kickbacks:
- Weak controls over the procurement or bidding procedures.
- Accepting late bids or falsifying the bid log
- The winning bid appears too high than market rate.
- The winning bidder sub-contracts work to one or more losing bidders
- There is a pattern where the last party to bid wins the contract
- A suspect employee displays sudden wealth, pays down debts, or lives beyond their means.
- A suspect employee is doing outside business.
- Disqualifying bids without proper justification (e.g., voiding bids for errors in specifications but in fact no error exist)
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