Kickback

Kickback Illegal Payment Corruption Corporate Fraud Favourable Treatment Bribery Business Ethics
A colloquial term for an illegal payment made to secure favorable treatment in the award of a contract.
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Definition

Kickback: A kickback is an illegal payment typically provided to someone in a position of power or influence, often with the intention of securing favorable treatment or the award of a contract. Kickbacks are a form of corruption and can involve various sectors such as government, corporate environments, and construction.

Examples

  1. Government Contracts: An official in charge of awarding construction contracts receives a percentage of the contract fee from a construction company in exchange for awarding them the bid.

  2. Corporate Purchases: A procurement officer in a corporation receives a kickback from a supplier in return for purchasing goods in substantial quantities, regardless of whether these goods are the best choice for the company.

  3. Healthcare: A doctor receives payments from a pharmaceutical company in exchange for prescribing their drugs, regardless of the patient’s specific needs.

Frequently Asked Questions (FAQs)

Q: Are kickbacks considered bribery? A: Yes, kickbacks are a form of bribery where the person receiving the payment uses their influence to provide favorable treatment unlawfully.

Q: What is the difference between a kickback and a legitimate commission? A: Commissions are legally and transparently agreed payments for services rendered, often standardized and well-documented, while kickbacks are illegal payments made without transparency, often in secret.

Q: How can companies protect themselves from kickback schemes? A: Companies can protect themselves through strict internal controls, whistleblower policies, employee training on ethics, and frequent audits.

Q: What are the legal implications of giving or receiving kickbacks? A: Both giving and receiving kickbacks can lead to severe legal consequences, including fines, imprisonment, and reputational damage.

Q: Can kickbacks happen in nonprofit organizations? A: Yes, kickbacks can occur in any organization where there is the potential for individuals to influence the award of contracts or other forms of favorable treatment.

  1. Bribery: The act of giving or receiving something of value in exchange for some kind of influence or action in return.

  2. Fraud: Wrongful or criminal deception intended to result in financial or personal gain.

  3. Corruption: Dishonest or fraudulent conduct by those in power, typically involving bribery.

  4. Embezzlement: The act of stealing or misappropriating funds placed in one’s trust or belonging to one’s employer.

  5. Money Laundering: The process of concealing the origins of money obtained illegally, typically by means of transfers involving foreign banks or legitimate businesses.

Online References

  1. Investopedia: Kickback
  2. The Balance: What Is a Kickback in Business?
  3. U.S. Securities and Exchange Commission: Bribery in International Business

Suggested Books for Further Studies

  1. “Corruption: A Very Short Introduction” by Leslie Holmes
    This book provides an overview of corruption, its causes, effects, and different forms including kickbacks.

  2. “The Honest Truth About Dishonesty: How We Lie to Everyone - Especially Ourselves” by Dan Ariely
    Offers insights into why people engage in unethical behavior like giving or receiving kickbacks.

  3. “Corruption and Government: Causes, Consequences, and Reform” by Susan Rose-Ackerman & Bonnie J. Palifka
    A comprehensive text on how corruption, including kickbacks, operates within government sectors and its implications.

Accounting Basics: “Kickback” Fundamentals Quiz

### What is a kickback? - [ ] A legal commission paid for services rendered. - [ ] A refund provided after a transaction. - [x] An illegal payment made to secure favorable treatment. - [ ] A bonus for reaching sales targets. > **Explanation:** A kickback is an illegal payment made typically to secure favorable treatment, often in the awarding of contracts. ### In what sectors can kickbacks commonly occur? - [ ] Only in government sectors. - [x] In government, corporate environments, and construction. - [ ] Only in healthcare sectors. - [ ] Kickbacks are not common in any sector. > **Explanation:** Kickbacks can commonly occur in various sectors, including government, corporate environments, and construction. ### What distinguishes a kickback from a legitimate commission? - [ ] Transparency and legality. - [ ] Amount paid. - [ ] Type of service rendered. - [x] Transparency, documentation, and legality. > **Explanation:** A legitimate commission is transparent, well-documented, and legal, whereas a kickback is secretive and illegal. ### What is the primary legal consequence for giving or receiving a kickback? - [ ] A warning letter. - [ ] Increased job responsibilities. - [x] Fines and imprisonment. - [ ] Bonuses and promotions. > **Explanation:** The primary legal consequences for giving or receiving a kickback include fines and imprisonment due to its illegal nature. ### Which of the following is a method to prevent kickbacks in organizations? - [x] Implementing strict internal controls. - [ ] Removing the audit department. - [ ] Reducing transparency. - [ ] Increasing the complexity of procurement processes. > **Explanation:** Implementing strict internal controls can help prevent kickbacks by ensuring transparency and reducing the opportunities for illegal payments. ### Are kickbacks a form of bribery? - [x] Yes, they are a form of bribery. - [ ] No, they are just standard business practices. - [ ] Only if disclosed publicly. - [ ] Depends on the industry's regulations. > **Explanation:** Kickbacks are a form of bribery where illegal payments are made to influence decisions in a way that benefits the payer. ### Can kickbacks involve more than two parties? - [x] Yes, multiple parties can be involved. - [ ] No, it always involves just the payer and recipient. - [ ] Only in government sectors. - [ ] Kickbacks cannot involve third parties. > **Explanation:** Kickbacks can involve multiple parties, such as intermediaries who facilitate the illegal payments between the payer and recipient. ### What term closely relates to kickbacks but involves stealing or misappropriating funds trusted to one's care? - [ ] Bribery - [ ] Fraud - [ ] Corruption - [x] Embezzlement > **Explanation:** Embezzlement involves stealing or misappropriating funds trusted to one's care, which can be associated with kickbacks in some cases. ### Which is not a characteristic of kickbacks? - [ ] Illegal - [ ] Under-the-table - [ ] Results in favorable treatment - [x] Officially sanctioned > **Explanation:** Kickbacks are illegal, under-the-table transactions that result in favorable treatment but are not officially sanctioned. ### Why might some businesses engage in kickbacks despite the risk? - [x] To gain an unfair competitive advantage. - [ ] To improve employee morale. - [ ] To comply with mandatory regulations. - [ ] To ensure community welfare. > **Explanation:** Some businesses may engage in kickbacks to gain an unfair competitive advantage, bypassing legal and ethical standards.

Thank you for exploring the intricate world of kickbacks. Aim to uphold integrity even in competitive environments!

Tuesday, August 6, 2024
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