Acquisition fraud. Perpetrators and modus operandi.

By using legal language, we may define fraud as the generic designation for the process of one person trying to achieve a material profit by way of breaking the law (for example by deception, embezzlement, stealing, using fake documents, etc) or by ignoring the rights of another individual (for example contract fraud). 

Through specific due diligence we can track fraudulent activities such as: 

• Wilfully manipulating financial statements (the most popular example being an incorrect income declaration);
• Tangible or intangible goods embezzlement (fraudulent reimbursement of expenses);
• Acts of corruption (taking and receiving bribes, funds embezzlement, influencing tendering procedures, concealment of conflicts of interest).

In what follows we will be presenting several details about abuse of office and examples of  acquisitions fraud, in order to timely identify such practices when they emerge in the organization. 

Ways of committing acquisition fraud 

Rigging or defrauding an auction 

An auction for buying products or services could be rigged or defrauded in multiple ways. The most popular are as follows: 

• Courtesy offers – when a competitor accepts to present a wilfully disadvantageous or special terms offer, of which he knows will be rejected, in order to help the assigned winner: 

• Alternating offers – when companies have an agreement and the bidder is assigned by rotation, then the sums are given to each participant, in accordance with the pre existing agreement; 

• Holding back offers – when companies which usually participate in auctions in the specific field have an agreement and quit bidding, in order for a specific participant to win the auction. 

Corruption and commission 

A usual way of committing acquisition fraud is by acts of corruption, by giving and receiving improper benefits, such as bribes or commissions, in order to facilitate illegal practices during acquisitions processes. 

Not declaring conflicts of interest 

Even though the legislation, technical norms and acquisition procedures specifications strictly prohibit defrauding by contracting companies of relatives or even own companies, there are a lot of participants who do exactly that. 

Handling the risk of acquisitions fraud 

The best solution for stopping acquisitions fraud is prevention, followed by detection and reaction. For this to happen you have to create an internal management fraud risk framework and deploy specific anti acquisition fraud controls. 

Coordinating multidisciplinary teams in order to identify and diminish fraud risk, as well as analyzing economic information and auditing operational management, is paramount for success of this goal. 

We recommend collaborating with companies which specialize in economic and financial investigations, companies capable of also undertaking business intelligence analyses, in order to timely detect any acquisition fraud attempts and other similar dangers which could affect the company’s activity, financial stability and reputation. 

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