• Conduct change order analysis frequency/amounts post bid.
HIGH RISK TRANSACTIONS
There are certain transactions (txns) that have a great susceptibility
for corruption. Figure 2 shows several typical high-risk transactions
and potential guidance on how to review them.
ANTI-CORRUPTION DUE DILIGENCE THIRD PARTIES
For high risk third parties which includes agents (in high corruption
risk countries) that are providing introductions to government
entities, there should be a higher level of due diligence (See Figure
Of special note, accepting at face value information provided
by a third party without verifying the accuracy is not considered
real due diligence. This would be considered “papering the file”
and will not be accepted by regulatory agencies when an investigation commences and therefore should not be accepted by
The 2016 Unaoil scandal validates the argument that compliance cannot be a “check the box” exercise. In this instance, internal
emails went public showing that it may have been an intermediary
for bribes involving numerous corporations.
INDEPENDENT TRANSACTIONAL TESTING
Along with the internal review processes mentioned above, data
analytics testing will assist with ensuring your anti-corruption
program is operating effectively. Conduct prioritized data analytics
testing based on high-risk divisions, vendors/agents (based on
type and monetary amounts paid), or locations. Test project
purchase order and invoice data including quantity, pricing, and
descriptions while comparing to other arms-length transactions
with review by third-party objective experts. For example:
• Look for low digit and/or consecutive invoice numbers
(indicating that you might be the only customer for a
vendor or potential shell company).
• Identify potential duplicate invoices by examining those
with the same date and amount for invoice numbers such
as “1a” or “2b”.
• Use Benford’s law (also called the first-digit law), an observation about the frequency distribution of leading digits
in many real-life sets of numerical data. The law states
that in many naturally-occurring collections of numbers,
the leading significant digit is likely to be small. Test invoice
amounts for unnatural frequencies of specific digits with
the same significance. For example, if you observe multiple
amounts just below approval thresholds such as $24,999,
$249, and $24, the second digit, “ 4”, has an occurrence
greater than is natural according to Benford’s law. Such
behavior may be indicative of an attempt to circumvent
approval processes for purposes of making corrupt
• Also, compare project vendor addresses with those of
other vendors, employees, and related parties to identify
potential conflicts of interests.
Based on investigation of data analytics testing results, eliminate
false positives and perform “on the ground gum shoe” investigating.
For example, if you find two bidders that are consistently winning
bids, visit the location. In parts of Latin America, different addresses
and vendor names can lead you to the same location. Site visits
can also provide you with information on whether the vendor can
actually provide the service or manufacture the product. A residential address that is billing for large power generators may be
either a distributor or a false vendor. In addition, verify that the
product or service was actually delivered and/or provided.
As of the date of this article, it is unknown what the conclusions
will be of the known ongoing investigations by Brazilian authorities
of Eletrobras. There is a continuing Eletrobras internal investigation, and it is unknown what will transpire, if anything, regarding
the pending class action lawsuit.
In the meantime, the Petrobras scandal does not seem to be
going away. In February 2017, Panamanian investigators raided
law firm Mossack Fonseca offices, the integral player in the “
Panama Papers” scandal. Ten months before the raid, documents
were leaked implicating companies and individuals using the law
firm as a safe haven for tax evasion. Now there are allegations by
Panamanian and Brazilian authorities related to Odebrecht bribe
payments being connected to Fonseca.
Verify before entering into international, high-risk transactions
that you have a robust and risk-based anti-corruption compliance
program with sufficient internal controls in place so your organization can avoid the “film noir” atmosphere encountered by these
Brazilian business entities.
ABOUT THE AUTHOR
Mark Jenkins is a senior managing director in the
Dallas office of GlassRatner Advisory & Capital Group
LLC. He has more than 20 years of experience in
forensic accounting, financial investigations, fraud
risk assessments, anti-corruption consulting, and
financial analysis. He has in-depth knowledge and
skills in managing litigation projects and investigations in both
domestic and international environments with extensive experience in Latin America. He regularly provides global anti-corruption
due diligence and training to international business entities. Before
joining GlassRatner, Jenkins co-founded Fidelity Forensics Group
LLC, a forensic accounting, investigations, and anti-corruption
The views and opinions expressed in this article are those of the
author and do not necessarily reflect the views, opinions, or positions
of GlassRatner Advisory & Capital Group LLC or of Oil & Gas Financial Journal.