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This post addresses contractor fraud with Frank Lou and Bo.

Frank Lou had recently been promoted to construction manager at a development firm. He was responsible for dealing with contractors who were bidding on a multi-million dollar excavation job for the new high-rise. Times were tough, several contractors had gone under recently, and the ones left standing were viciously competitive. That morning, four bids were sitting on Frank's desk. The deadline was midnight, and the bids would be opened the next morning. The first bidder, Bo Freely, was a tough but personable character that Frank had known for years. Frank had lunch with him today, and after a few beers, Bo hinted that if Frank "inadvertently" mentioned the amount of the lowest bid, he'd receive a "birthday card" with a gift of cash. After lunch, Frank carefully unsealed the bids and noticed that another firm had underbid Bo's company by a small margin. Frank took Bo's bid envelope, wrote the low bid amount in pencil on it, and carried it downstairs where Bo's son William was waiting. Later that afternoon, a new bid came in from Bo's company. The next day, Bo's company got the job, and Frank got a birthday card in his mailbox.

1.) Was Frank's Company hurt in any way by this fraudulent action?

Yes. Franks action are liability to the company in terms of the fact that it could bring legal and/or public relations harm to the company. His actions basically amounted to collusion and accepting bribes. This 'kickback' is quite probably illegal although I am not a lawyer I would imagine it violates the law and could therefore create a legal problem for the company. Furthermore, if the public were made aware of this unethical behavior it could harm the reputation of the development firm and pose a risk to future and current business.

2.) How could this action hurt Frank?

Again, I would presume this acceptance of money in exchange for material non public information would be illegal. Therefore, Frank could face legal consequences. Furthermore, he could lose his job and damage his reputation in the community for future job opportunities.

3.) How can a business protect against this kind of fraud?

A business should put internal controls in place to protect against these type of risks. The fact that Bo's company submitted a new, lower bid shortly after the first bid would raise a red flag. To protect the company in a legal sense I believe the company should keep documentation showing training and prevention programs designed to deter this type of fraudulent behavior.

Solution Preview

1. Frank's actions were both unethical and illegal, which is detrimental to Frank's company. Frank participated in a fraud and can be prosecuted for doing so. It is illegal to do what Frank did. Frank's company accepted bids as a means to develop fair competition and Frank has destroyed ...

Solution Summary

This solution analyzes the case of Frank Lou and Bo. The questions addressed include:

Was Frank's Company hurt in any way by this fraudulent action?
How could this action hurt Frank?
How can a business protect against this kind of fraud?