Corruption may eat away $500 bn from global stimulus funds

Fraudulent and corrupt practices are expected to swallow a whopping USD 500 billion out of USD 5 trillion stimulus fundings by governments worldwide, a global report has said.

According to global risk consultancy Kroll's latest edition of Global Fraud Report, government stimulus funding worldwide aggregating USD five trillion has introduced new opportunities for fraud and corruption worldwide.

Though governments are likely to struggle to keep the losses through corruption down, it would "still provide a staggering pot of USD 500 billion in corrupt gains," the report stated.

Citing data from Transparency International, the global coalition against corruption, the report stated that it has put into perspective the heightened risk brought on by the financial crisis.

"According to the coalition, corruption can raise procurement contract costs by at least 10 per cent in a stable economy an equivalent of USD 500 billion in corrupt gains," the Kroll report stated.

Interestingly, in emergency situations these costs can rise as high as 30 per cent of the overall cost of the contract, it added.

"Governments need to be aware of significant risk of corruption that coincides with stimulus funding," Kroll's Business Intelligence and Investigations practice senior managing director Blake Coppotelli said. Federal and state agencies controlling distribution of these funds need to enhance their resources to oversee and enforce robust anti-corruption policies or look to independent experts to supplement their efforts, Coppotelli added.

The report highlighted that government spending was often targeted by fraudsters, because the nature of the projects -- large sums of investment coupled with complex procurement processes -- provide both the motive and the means for opportunists to take advantage.

"With equivalent to Japan's annual national output being plugged into economy in fiscal stimulus packages set by world leaders at the G20 London Summit, opportunity to fraudsters has become significantly more attractive," it added.

The Kroll report addresses the rising concerns and offers guidance to governments in tackling corruption. It advised that tendering processes should be as transparent as possible, including the distribution, receipt, and use of funds, and the procurement of contracts paid by these funds.

Further, agencies and vendors should be held accountable for instituting and complying with transparent processes and rewards should be provided to officials who deliver projects successfully and appropriate salaries should be used to discourage bribery, it said.

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