Drive for revenue growth ignores risk of prosecution
Ernst and Young's 2012 Global Fraud Survey, Growing Beyond: a place
for integrity, shows fifteen percent of senior executives polled at
leading companies around the world are willing to make cash payments to
win or retain business, up from nine percent in 2010. More than 1,700
executives across 43 countries, including CFOs and heads of legal,
compliance and internal audit, were surveyed for their views of fraud,
bribery and corruption.
Face-to-face interviews were also held with senior executives of blue
chip companies to discuss these findings and their own efforts to
mitigate these risks. For a growing number of executives, the pressure
to meet revenue growth targets is undermining their commitment to
compliance with policies and the law.
The competitive landscape continues to be distorted by unethical
conduct.
Over a third of the respondents believe corruption is widespread in
their country and this is perceived to be higher in rapid-growth markets
(e.g., Brazil - 84 percent, Indonesia - 72 percent, Turkey - 52
percent).
Financial statement fraud remains an important risk across many
jurisdictions. Indeed, fifteen percent of respondents in Far East Asia
think that financial performance misstatement can be justified.
Boards under pressure
Boards are held responsible by regulators and shareholders for
addressing these challenges and are under intense pressure. But more
than half of c-suite respondents think the board needs a more detailed
understanding of the business if they are to function effectively as a
safeguard. Mixed messages are being given by managements with the 'tone
at the top' diluted by the failure to penalise misconduct. Almost 50
percent of respondents believed that, while management strongly
communicated its commitment to anti-bribery and anti-corruption
policies, people were not penalised for breaches.
David Stulb, Global Leader of Ernst and Young's Fraud Investigation
and Disputes Services practice said, "Growth and ethical business
conduct in today's markets can appear to be competing priorities. Our
findings show that, as businesses continue to pursue opportunities in
new markets, many executives are underestimating the risks. Boards need
to put pressure on management to conduct more frequent and more robust
anti-bribery and anti-corruption risk assessments and they need more
tailored reporting to drive improved compliance."
CFOs under spotlight
CFOs are among the most influential executives reporting to the board
on fraud, bribery and corruption issues. The results from the nearly 400
CFOs surveyed, however, suggest that a concerning minority could be part
of the problem. Fifteen percent of the CFOs surveyed said they would be
willing to make cash payments to win business and 4 percent said they
would be willing to misstate financial performance. This group of
executives is not large in absolute numbers but, given their
responsibility, they represent a huge risk to their businesses and their
boards.
David Stulb said, "The CFOs that we work with are invariably
committed to extremely high ethical standards. But the CFOs increasing
influence within companies means they have a key role in preventing
fraud, bribery or corruption and they need to redouble their efforts to
set the right tone. They need to ensure that they themselves are
trained, that they increase their awareness of the risks while
demonstrating support for anti-corruption initiatives." Preparing for
new challenges: managing third parties and risk from acquisitions.
Companies pursuing opportunities in rapid-growth markets face specific
risks that are not always being managed effectively, according to the
survey. For example, due diligence on third parties is expected by
regulators - it is required under both the US Foreign and Corrupt
Practices Act and the UK Bribery Act - but almost half the respondents
(44 percent) reported that background checks were not being performed.
Many businesses are also exposed to additional risk, having failed to
conduct appropriate anti-corruption due diligence before and after
acquisitions. For US-based companies, this type of due diligence is the
norm - 84 percent either always or very frequently conduct it
pre-acquisition. Elsewhere the frequency is much lower (32 percent in
China, 9 percent in Nigeria). David Stulb said, "The survey shows
companies struggling to balance growth and ethical business conduct.
Many companies are failing to do enough to manage the risks of fraud,
bribery and corruption. Boards need effective channels of communication
with contacts across the finance function and other executives within
the business to ensure that they have a full and an accurate picture of
compliance. For businesses to seize new opportunities, boards need to
ensure that the right tone is set not just at the top, but at all levels
and in all markets."
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