Your employees shouldn’t accept any gift offered with the intent to improperly influence business decisions — or even one that merely appears to compromise their ability to act in your company’s best interests. Unfortunately, kickbacks are often disguised as gifts or travel, so they can be hard to identify. Here’s how to maintain your business’s high ethical standards.

Applying the integrity test

Kickbacks return a portion of the money exchanged in a business transaction as compensation for favorable treatment. However, gifts, gratuities or courtesies of modest value associated with ordinary business practices are usually acceptable. The key consideration is the intention of the giver. Yet you must take care to avoid not only an actual impropriety, but also the appearance of impropriety.

Defining what’s proper or improper with a specific dollar amount can be difficult. Common sense often determines when a gift becomes extravagant or excessive. Professional organizations may provide their members with gift standards, and your employee handbook should set guidelines and spell out your policy.

What to watch out for

How can you find out if your employees are receiving kickbacks? Often they’re uncovered when an employee or vendor reports suspicious behavior. Therefore, offering a confidential fraud hotline to all stakeholders is critical.

Without an eyewitness, you might look for a pattern of lavish business entertainment or irregular purchasing behavior. Watch for repeated instances of ordering materials at a time other than the optimal reorder point and consistently placing orders with the same vendor. Failure to follow general bidding policies also signals the need for a closer look. And if costs of materials seem out of line, the cause may be kickbacks in general purchasing.

Suspicious bids

Kickbacks sometimes sneak into the bidding process when employees accept money in return for advance information about bids. Irregularities in the bid solicitation and submission process — for example, tailoring requirements in solicitation documents to fit the products or capabilities of a single contractor — may be signs of a kickback scheme.

Other signals of possible trouble include pre-qualification procedures restricting competition and bypassing necessary review procedures. A foreshortened bid submission schedule might allow only those with advance information time to prepare proposals.

Don’t allow wiggle room 

When in doubt, err on the side of setting stricter gift acceptance rules. You don’t want to provide unethical employees or vendors with any ethical wiggle room. In addition, the same integrity tests should be applied in deciding whether to offer a gift to a customer or any other third party.

(This is Blog Post #1073)