Lax supervision leads to graft

Article contributed by special arrangement with the Independent Commission Against Corruption

Jim was a project manager working for a medium-sized construction company. He had responsibility for the selection of sub-contractors, supervision of their work, and authorising payment according to the terms of the respective contracts. Within the company, he reported directly to Matthew, who was general manager and focused on the overall profitability of individual projects, but basically delegated the day-to-day running and the details of each one to the project manager concerned.

Taking advantage of this loose management control, Jim started to socialise more regularly with some contractors. He had meals with them, took some joint trips to Macau, and soon started giving them additional work as well. He then went a step further and asked these sub-contractors to inflate the price of their quotations and to pay a rebate to him, as a way of lining his own pockets. Jim also demanded additional kickbacks equivalent to a certain percentage of the amount paid under each contract for expediting payments. To ensure they continued to win remunerative business, the sub-contractors agreed to these demands.

Jim's collusion and corrupt practices went unnoticed for over a year until one sub-contractor made a report to the ICAC for investigation. Subsequently, the construction company's management team approached the Advisory Services Group of the Corruption Prevention Department of the ICAC for advice on how to improve its internal control system.

When reviewing what had gone wrong, certain things came to light. Firstly, there was a lack of management control. As general manager, Matthew should have taken overall responsibility for the proper administration of the projects, instead of only concentrating on whether they were profitable. Without adequate management control, unscrupulous members of staff like Jim could easily abuse the system unchecked.

Secondly, there were deficiencies in the system of selecting sub-contractors. Without a central list of approved contractors or a well-established system for vetting companies and awarding contracts, project managers could choose sub-contractors with few controls, opening the door to favouritism and collusion. As a result, the company was unlikely to get value for money or the most competitive bids. Also, there was a greater chance that project managers who received kickbacks would tolerate substandard services.

Thirdly, it was found that there was a lack of clear company guidelines on processing payments. There was no internal time limit for completing payments, nor a control sheet showing the standard procedure for payment. This created opportunities for unscrupulous staff to manipulate contract payments to individual sub-contractors for their own ulterior motives.

For enquiries about this article or corruption prevention advice for private sector companies, please contact the Advisory Services Group of the ICAC's Corruption Prevention Department at (tel) 2526 6363, (fax) 2522 0505 or (e-mail address) The service is free and confidential. To report corruption, call the ICAC's 24-hour hotline at 2526 6366.

Tips for management
Q1 As a responsible company manager, you should:
A1 a) Instigate process control
  • Retain control of certain critical decisions, such as the selection of sub-contractors
  • Conduct random supervisory checks on the work of your staff to detect any irregularities
  • Establish direct communication channels with the company's business associates, (e.g. suppliers, sub-contractors and consultants), so that feedback or complaints can be heard in good time.

    b) Establish a system for awarding contracts

  • Adopt a policy on assessment criteria with, as far as practicable, objective comparisons of competitiveness and suitability for the selection of sub-contractors
  • Establish a central list of approved sub-contractors from which the project team can select companies qualified to be invited to tender by rotation
  • Centrally administer the process of appointing sub-contractors for all projects to ensure adequate supervision of the activities of different project teams.

    c) Tighten procedures for processing payments

  • Set an internal time frame for the project team and accounts department to follow for processing all project payments made to sub-contractors
  • Transfer the checking of contract and payment terms from frontline site staff (e.g. project supervisors) to office staff (e.g. the accounts team or surveying team) to enhance the impartiality of the process.

  • Taken from Career Times 11 November 2005

    (Last review date: 23 August 2013)

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