The secret of preventing employees from receiving commission

The article titled: “The secret of preventing employees from receiving the commission” from Lawyer Nguyen Huu Phuoc, is published on Sai Gon economic times, dated 21 July 2011.

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To maintain the daily operational process, enterprises have to buy goods and services from many suppliers. Each department will be in charge of the purchase of each kind of goods or services, depending on their specific function. And according to each enterprise’s mode of management, the legal department (if any) will sometimes participate in the process of negotiating and implementing contracts to ensure the legality of contracts and the interest of enterprises. The financial or accounting department can also join to manage the issuance of VAT invoices and the offered price of goods or services, etc.

However, the fact that suppliers collude with employees to provide goods or services at a higher price is now getting more and more popular in Vietnam. In return, the employees in charge will receive commissions from suppliers.

The consequences

The problem of receiving commission actually causes a lot of negative consequences in the aspects of economy, society, education, etc. not only for the parties in the transactions but also for the State and society.

For the enterprises: (i) they have to buy goods and services at higher prices, so, the price of output products will be higher too, which reduces the competitiveness of the products and services of the enterprises in the market and the enterprises’ revenue/profits as well, (ii) the purchased quality of goods and services cannot be guaranteed because the employees in charge will neglect the steps of product/service examination, (iii) the action of receiving commission will create an inequal working environment in the enterprises because there is the inequality and unreasonably on the income among different groups of employees, (iv) the professionalism of the internal management system will be reduced.

For the suppliers, the consequences are: (i) the expenses for commission will not be able to be put into their deductible expenses because there is no availability of invoices and vouchers as evidence for these payments, thus they must indeliberately bear the expense of 25% of corporate income tax, (ii) in order to manage this kind of expense, the suppliers must maintain more records beside the tax accounting records as regulated by law, which leads the suppliers to the administrative violation of tax and accounting, (iii) the offered price of goods and services from the suppliers will be higher than the market price, which reduces the competitiveness, (iv) the professionalism of the suppliers in the eyes of customers will be decreased.

This mode of commission payment causes the revenue loss to the State on personal income tax over the extraordinary incomes of individual taxpayers. For the society, the routine of paying commission will erase the beautiful images of Vietnamese workers in the eyes of foreign investors and make the investment environment of Vietnam less attractive; create a bad precedent for the employees.

To prevent

In the respect of management, the question for managers is what they have to do to minimize or eliminate this problem and how to do that. Hereunder are some solutions to this purpose. They can be conducted separately or combined together, depending on the characteristics and capability of each enterprise, to achieve the highest efficiency.

Enterprises must request the Suppliers to sign an agreement with the provision of not paying any commission to the employees in charge. In case of the breach of the Suppliers, the sanction (not limited to the immediate termination of the transaction between  the two parties) is that not making any payment for the goods and services of which the employees get the commission and sanction due to the breach of contracts (not exceed 8% of the value of the violated part of contracts) and contract compensative sanction (on the direct loss and the actual expense along wih the direct benefit which the enterprises would have if not be violated.)

The enterprises need to supplement their Internal Labour Regulations that the action of receiving commission is one of the breaching actions which will incur the highest form of labour penalty (dismissal), (Article 85.1 of the Labour Code), The Internal Labour Regulations must also clearly regulate the level of physical loss to the enterprises as a sufficient basis for the dismissal of the employees as VND,000,000 for each violation detected. The supplementation must be registered at the local Department of Labour, War Invalids and Social Affairs for legality.

To improve the legality, the enterprises can also supplement to the labour contracts between the enterprise and the employees (as an annex) or ask the employees to write a commitment not to receive commission from the suppliers and accept to be subject to labour sanctions if violated.

It is necessary for enterprises to frequently hold internal training courses on the Internal Labour Regulations (ILR) and Moral Regulations (MR) to create staff’s awareness of the compliance. (it is important to emphasize that the action of receiving commission from the suppliers will be treated as serious violation of the ILR and MR and any employee violating them will be sanctioned at the highest level of labour discipline).

The enterprises must have the policy of annual internal staff transfer. This helps the employees to understand the working procedures, the opportunities of each position, and the approach to these opportunities (actively or passively). It will help to reduce the collusion between the suppliers and the employees.

In choosing the suppliers, the enterprises must create a strict process of examination with the participation of many relevant departments in the enterprises. The more participants there are, the less collusion will be.

The enterprises must have the procedure of annual selection of suppliers. Accordingly, the enterprises can consider whether to continue to choose the suppliers that had provided goods and services for the enterprises for more than 2 years. This helps to cut any dishonest relationship between the employees in charge and the suppliers. However, the enterprises can continue to cooperate with the suppliers with long-term and actual prestige.

The enterprises must issue the Regulation on purchasing of goods or services. Accordingly, all the negotiations on contract with suppliers must be made through official information exchange channels of the enterprises. The purchasing made through personal emails, personal cell phones must be limited. By saving data on the server and recording all internal phone calls, the enterprises will have the source to check the compliance of employees.

The enterprises must be noted not to indirectly formalize the action of receiving commission of the employees. In some enterprises, the boss agrees for the employees to receive the commission provided that they have to inform him of the matter.

The money from the commission will be considered as a public budget and are monthly/quarterly shared with all the employees in that department. At first, it sounds reasonable because there is no loss for the enterprises whereas there is a benefit for employees. But, in fact, this does damage to the enterprises, and at the same time, the employees will be encouraged to make more deal-in-silent with the suppliers to get more commission.

Finally, the enterprises may establish a department of compliance monitoring or at least may hire a specialist to monitor the employees’ compliance.