Contents

1.                 Introductory

2.                 Definition of Fraud and Corruption.

3.                 Forms of corruption:

4.                 Detection of Fraud and Corruption          

5.                 Areas prone to Fraud and Corruption:

6.                 Environment conductive to corruption - A Global Overview.

7.                 Magnitude of Fraud and Corruption.

8.                 Recommendations 

9.                 Conclusions:

Paper on Nature and Magnitude of corruption prepared jointly by the Royal Audit Authority and Revenue and Customs Division

1. Introductory

The Royal Government of Bhutan has been pursuing a very prudent, well thought out and balanced socio- economic development policy. Under the dynamic leadership of His Majesty the King, the country has achieved unprecedented economic growth in just over the last two decades. Blending socio economic growth with the real happiness of the people, His Majesty the King declared a vision and theme of Gross National Happiness, which not only provided a unique measurement yardstick but also gained wide recognition and acceptance.

While developmental initiative brings about improvement in the living conditions of the people, Government has been very wary of many evils which are synonymous to the developmental activities. Fraud and corruption go hand in hand with the development process. Perhaps, it is only a question of degree and methodologies adopted in perpetrating corruption and fraud in different countries which may be in variance. His Majesty the King has always been very concerned on this issue and its likely effect in our small social set up. His Majesty has always aspired for a small, effective and clean government. Number of Royal kashas had been issued to step up due vigil over the public spending hoping for a clean and corruption free administrative set up.

To mark the Silver Jubilee Celebration of His majesty's enthronement, there is perhaps no other better alternatives than to express our solidarity on His Majesty's dynamism and reaffirm our commitment in establishing a corruption free society. The Royal Institute of Management has organized this seminar on Corruption and fraud and a much wider representation has been expected to deliberate on this issue. The Royal Audit Authority and the Division of Revenue and Customs have been advised to present a paper on the Extent and Magnitude of Corruption while papers on other themes will be covered by other agencies.

2. Definition of Fraud and Corruption
Though definition of fraud and corruption is not part of our paper, for proper understanding of the subject matter in the context of our presentation, fraud and corruption have been defined as follows;

Fraud: Fraud is usually characterized as an act of willful deceit, trickery, concealment or breach of confidence that are used to gain some unfair or dishonest advantage.

Corruption:   Corruption is a much broader and multi - layered phenomenon. It is an unethical, illegal, dishonest act aimed at obtaining an unfair gain by one or more persons.

Definitions of corruption often found are:Any form of unethical use of public authority for personal or private advantage ; the perversion of integrity by bribery or favor.

Action by a government functionary that is different from the standard, in order to favor someone in exchange for a reward.

3. Forms of corruption

It is intended to give an international dimension and perspective to this paper. As such, nature and forms of corruption presented in this paper depict a global scenario of corruption. It may not be necessary that some or all types of corruption discussed here may be prevalent in this country.    

Many of us have wrong notions about our understanding as to what constitute corruption and  fraud. Gift and presentations are generally not included under this category. Certainly, if gift and presentations of significant amounts are given with the intention of influencing present or future decisions in favour of the donors, it would be unethical to accept such calculated gestures. Similarly, acts of favouring close friends and relatives for employment related issues and contract works etc. in preference to others or carried out in a manner generally not permitted or not extended to others, would also constitute fraud and corruption. Many would still argue that such acts are gratuitous in nature and as such are not unethical. Perhaps, the question we should be asking is whether the recipients/ beneficiaries would or would not have got it in the normal course.

In the professional circle, it has been generally understood that manifestations of corruption include, amongst others, the following:

·               Bribery and extortion: commission, unreasonable gifts, Kickbacks etc.

·               Fraud, embezzlement and theft:  Forgery, manipulation of records, shortage of cash, pilferage of store etc.

·               Misappropriation of resources :Irregular diversion of fund/properties/stores

·               Undue favors in exchange for gains : Award of contracts to favored ones, Undue payments i.e. advances, escalation and not provided in the agreement etc 

·               Abuse of authority : Exercising discretionary powers for personal gains, Misuse of office equipment, Misuse of funds and human resources,

·               Nepotism : Favoring near and dears

·               Under/over assessments of taxes and duties with personal motives

·               Tax evasion and smuggling

·               Over/under invoicing with a view to financial benefit

·               Unfair recruitment /promotion/placements/training

·               Non compliance of rules and regulations with a view to gain

·               Inaction by the rules enforcing authorities/regulatory bodies for violation