Lessons from Operation Jarek Presentation by
Lessons from Operation Jarek Presentation by: Colette Kenny Corruption Prevention Gifts & corruption 2 Wollongong (2008) – Beth Morgan Transgrid (2009) Willoughby (2011) – Edward Karkowski Operation Jarek (2011) Robin Newman Pty Ltd Pinnacle Traders Universal Telemarket ing Services (UTS) PAE Industries Universal Cartridges NCH MOMAR Chemicals 3 R&R Tape Supplies Operation Jarek – Conduct uncovered: Corrupt conduct findings against 41 people and seeking advice of DPP re: prosecution of 9 people. False invoices paid by Bathurst and Yass councils Extensive gift-giving A total of $1.5million worth of corrupt conduct “Relational sales” tactics used by salespeople 4 Weak procurement and inventory management processes Jarek gifts 5 Why beware a gift? Gifts manipulate the value that society places on an individual to return a favour Gifts create an illusion of trust and are a means of flattery 6 A receiver of gifts often doesn’t realise the effect Gifts work: they wouldn’t be given otherwise The norm of social reciprocity 7 Society expects that people respond to each other kindly There is a moral obligation in our society to reciprocate kindness It is essential for the effective functioning of cooperative behaviour and the control of the unscrupulous Jarek: Gifts given in the context of sales & marketing 8 Gears of selling Suppliers trained to build up relationships with customers (so-called “relational selling”) 9 “If you do something nice for me, I’m obligated to reciprocate” 10 Customer Record Card 11 Salesperson or friend? Suppliers were well prepared for their job of selling Public officials were unprepared for these tactics: Well, he was a sales rep and I was, you know, doing my job but we'd sort of worked up a little bit of a personal friendship as well, I thought it was, but in hindsight it wasn't. 12 How do you prevent gift giving in this context? Public officials Equip public officials to recognise “relational selling” tactics 13 Help staff to say no to gifts – rehearse a response Have clear rules on gifts and train staff on these rules. Staff should know the disciplinary consequences of accepting a gift. How do you prevent gift giving in this context? Supplier engagement Engage with suppliers not just about gifts but about procurement more generally. Public sector to take the initiative and set the rules. Take control of interactions Reduce supplier gift giving Set expectations Align incentives 14 What if gifts are given in secret? 15 Gifts can still be given in secret. If so, need strong operational processes and controls. In Jarek, the points of vulnerability were weak procurement and inventory management systems. These weak systems allowed staff to take the opportunity to act secretly & in a self-interested way without being detected. Procurement processes 16 Co-ordination costs: theory v’s practice Risk of self-interested behaviour v’s Cost of control Controls 17 Segregation of duties Control via delegation Oversight Efficient control of procurement 18 Consider introducing e-procurement But first, analyse procurement processes and identify vulnerabilities. Also ensure managers of stores can monitor all procurement activities of their staff. Inventory management: Weaknesses uncovered 19 Push & pull inventory: Stores and non-stock Organisation and operation of the store Stocktakes Best practice inventory management • Know what you have in stock (push & pull) • Know how much inventory you need to have on hand. • Organise the stores area so it is easy to find items • Keep stock secure • Have a system that tracks all inventory activity • Conduct regular stock-takes • Have random spot checks. 20 Conclusion One of the biggest investigations in 20 years of the ICAC Corruption prevention lessons to be learned • • • • 21 Equip staff to deal with suppliers Have clear rules on gifts Deter suppliers from providing gifts Have strong procurement and inventory management processes.
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