By Ken Tysiac
May 26 2012
An erosion of ethical standards amongst decision-makers leaves companies increasingly vulnerable to corruption, a new fraud report shows.
The risks are greater in emerging markets, according to Ernst & Young’s 12th Global Fraud Survey.
Fifteen per cent of 1,758 senior decision-makers in 43 countries said paying cash bribes to win or retain business can be justified to help a business survive an economic downturn, the survey showed.
That’s up from 9% two years earlier. In addition, those who said that misstating a company’s financial performance is justified in an economic downturn increased to 5% from 3% two years earlier.
Responses in the survey demonstrate that senior decision-makers observe mixed messages from their companies on the topic of bribery and corruption. Although 84% said senior management had strongly communicated a commitment to company anti-bribery and corruption policies, just 55% said there is training on those policies.
Forty-six per cent of the nearly 400 CFOs polled said they had received anti-bribery and corruption training, and their responses demonstrated the need for more training. Their acceptance of corruption was similar to that in the overall survey – 15% of CFOs said bribes are acceptable, and 4% said misstating a company’s financial performance is acceptable to help a business survive an economic downturn.
Supporting evidence
The results echo sentiment found in a recent CGMA survey.
The E&Y survey found that in Far East Asia, 15% of senior decision-makers said financial misstatements can be justified. That number rose to 36% in Vietnam. In Indonesia, 60% of respondents said making cash payments to win or retain business is acceptable. Eighty-four per cent of respondents in Brazil said corruption is widespread, and respondents in Africa were the most likely to have experienced fraud in the last two years.
In the AICPA/CIMA survey, more than half the professionals in finance roles from India, Malaysia, Pakistan, Sri Lanka and Zambia said they felt some pressure to compromise their organisations’ ethical standards. That pressure was lowest in the United States and the United Kingdom, reported by 18% of respondents in those countries.
Nonetheless, one in five respondents in the E&Y survey did not recognize that new markets bring new risks. Regulators do, though. Thirty-one of 36 US Foreign Corrupt Practices Act (FCPA) cases reported in 2011 related to actions in Asia, Eastern Europe and Latin America, the report said.
Third-party business partners also represent a major risk that may not be adequately monitored. Every FCPA enforcement action in 2011 involved the alleged payment of bribes by companies’ third-party business partners, according to Deloitte research.
Safeguarding against risk
The E&Y report suggests that company boards and audit committees make sure that management:
• Understands local risks and has strategies to deal with them.
• Can demonstrate the effectiveness of its anti-corruption efforts to stakeholders.
• Carefully screens and monitors third-party representatives, especially those dealing with government officials.
• Uses the latest forensic data analytics techniques to monitor compliance in real time.
• Establishes clear criteria for how extensive pre- or post-acquisition anti-corruption due diligence should be.
Concerted, risk-focused efforts need to target potential exposure, the report says, in order to properly balance growth and ethical conduct in difficult economic times.
Additional resources
• Managing Responsible Business: A Global Survey on Business Ethics:
The CGMA report explores business ethics, ethical performance and management within organisations.
• Fraud Risk Management: This guide describes effective strategies to prevent, detect and respond to fraud.
• Hotlines and fraud awareness programmes are keys to prevention: This article summarises key issues found in the Association of Certified Fraud Examiners Report to the Nations and the AICPA’s 2011 Forensic and Valuation Services (FVS) Trend Survey.
—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.
