Corruption in IT sector: Time to strengthen corporate governance

Recently, the news about a whistle-blower in a leading IT company helping uncover a potential Rs 100-crore ‘bribe-for-job’ scam made headlines. The management team of the IT company has taken disciplinary action against the employees involved in the bribery case while a detailed investigation is underway.

Is this a one-off incident? Certainly not. There have been several incidents in the past and almost all the cases have not become public.

For example, back in 2005, based on a tip-off, an IT company found that hundreds of software testers had been hired through illegal means. The company not only fired the perpetrator but also retrenched the hired engineers.

In another incident about 12 years ago, an investigation done by an IT company found their senior executive of outsourcing had used his family members for bribes. In a more recent incident, a senior executive was caught taking favours in ‘kind’ —
the executive received expensive gifts
and an all-expenses-paid vacation abroad for his family.

The IT industry is perceived to be shielded from corruption/bribery when compared to other private sectors or PSUs, but the reality is different. People working in the private sector would know several such instances.

Reasons for unethical behaviour

However, the moot question remains: what is the motivation for people to be involved in bribery, especially in the private sector, when the salaries are high?

As per the United Nations Office on Drugs and Crime report, such unethical behaviour can be attributed to rationalisation strategies employed by individuals to justify their actions. According to behavioural science, some people will cheat to gain an advantage if they are able to rationalise their behaviour and still feel good about themselves.

The report states that several key factors like national context, company size, the nature of the company (domestic or foreign), workplace diversity, individuals’ gender identity, age, and length of tenure influence rationalisations of individuals in the private sector. There are three common rationalisations.

First, ‘everyone else is doing it’. According to this, individuals perceive that their competitors are engaging in corrupt practices and justify their actions with the rationale of securing the company’s well-being as well as their personal well-being while still feeling they are ‘good’. This rationalisation is popularly known as the “collective action problem”.

Secondly, ‘it’s not my responsibility’. Individuals rationalise corruption as being beyond their control. Typically, cited reasons for employees trying to deny responsibility are: “I didn’t know that was corruption”; “I didn’t do it for me; “I did it for my organisation”.

Third, ‘the end justifies the means’. Corruption can be perceived as generating positive collective effects because, however incorrect, it appears to be in the company’s best interests. Corruption can also be rationalised because it has positive effects for individuals, such as enabling them to keep their jobs.

Bribery/corruption cases have taken several years to be unearthed. For example, one of the cases involving a European technology company spanned over 17 years and across multiple countries. However, a recent global report, “Occupational Fraud 2022”, by the Association of Certified Fraud Examiners shows that frauds are being caught faster. The median duration has dropped by 33%, from 18 months in 2012 to 12 months in 2022.

Fewer organisations are pursuing criminal prosecution, but more are taking civil action against the perpetrator. The report also shows that 62% of the perpetrators are in roles with a higher level of authority. The percentage of cases involving corruption is on the rise over the past decade and fraudsters are collaborating more. For example, 58% of the cases in 2022 had more than one person involved, as against 42% in 2012.

This is despite a significant increase in training provided by companies to its staff about anti-fraud policies, focused training imparted to senior executives and formal fraud risk assessment.

Early fraud detection is critical as this would serve as a deterrent for future incidences. The report shows that tips account for 42% of the fraud cases followed by internal audits 16% and management review 12%. When we will look at the sources, 55% of all tips came from employees, while over 30% of tips came from outside parties (customers, vendors and competitors).

The above data clearly shows the need to strengthen anti-corruption education and the communication mechanism to both employees as well as external parties. In addition, a well-written code of ethics should also give guidance to employees on how to deal with certain ethical situations.

There is an overall need to improve transparency in organisations. Maybe companies should identify divisions within their organisation with a high possibility of bribery and conduct regular forensic audits to rule out wrongdoing. Although such audits would involve cost, they
are needed for maintaining transparency and discipline.

Considering the overall digital awareness in society, it is not surprising to see crypto currencies being used in fraud cases. This means companies need to be up-to-date on policies and procedures while conducting diligence in the value chain (employees and third parties).

People found guilty must be blacklisted. How about creating a forum for sharing incidents, learnings and best practices for detecting frauds? Technologies like Artificial Intelligence and machine learning can be an ‘assistant’ in fraud prevention, as the algorithms would be able to flag potentially fraudulent or corrupt activities.

The current ‘bribe-for-job’ scam should serve as a wake-up call for the entire private sector. Companies should strengthen training, governance, transparency and disclosures.

(The writer is an ICT professional and a columnist based in Bengaluru)