Chinese Authorities on Further Crackdown on Domestic Bribery and Corruption
Ernst & Young’s 2012 Global Fraud Survey shows 15% of senior executives polled at leading companies around the world are willing to make cash payments to win or retain business, up from 9% in 2010. More than 1700 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 subsequently 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.
Chris Fordham, Managing Partner, Asia-Pacific Leader of Fraud Investigation & Dispute Services at Ernst & Young says, “In Asia, we’ve seen Governments increasing their efforts in fighting corruption. Hong Kong and Singapore have certainly been leading the way while Mainland China, Malaysia and Indonesia had also made notable efforts to catch up.”
The majority of respondents indicated they would support more supervision from regulators in order to combat the risk of fraud, bribery and corruption. 80% in China would like greater supervision compared with 69% globally.
Boards under pressure
92% of c-suite respondents in China (45% in Asia and 52% globally) 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 management – with the ‘tone at the top’ diluted by the failure to penalize misconduct. Almost 50% of respondents believed that, while management strongly communicated its commitment to anti-bribery and anti-corruption policies, people were not penalized for breaches.
Fordham comments, “Increasingly in Asia, we’ve seen corporate governance, risk management and other internal measurements moved up the priorities of the corporate boards. Boards need to put pressure on management to conduct more frequent and more robust anti-bribery/anti-corruption risk assessments and they need more tailored reporting to drive improved compliance.”
CFOs under the 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 globally, however, suggest that a concerning minority could be part of the problem. 15% of the CFOs surveyed said they would be willing to make cash payments to win business and 4% 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.
Fordham says, “The CFOs that we work with are invariably committed to extremely high ethical standards. But the CFO’s 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 clearly demonstrating support for anti-corruption initiatives.”
Fordham continues, “Chinese authorities are taking local enforcement seriously and this view is reflected in the results from our respondents. Those interviewed in China are almost twice as likely to think that local regulators are willing and effective at prosecuting corruption as the global average 56% in China compared with 27% globally.
Preparing for new challenges: managing third parties and risk from acquisitions
Companies globally that pursue opportunities in rapid-growth markets face a wide range of new risks that must be managed. At the same time, regions that show the highest levels of recognition of the risks associated with entering new markets include Asia where 81% of respondents agree that planned investment by their company in new markets will open the company up to new risks.
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 54% of Asia respondents (44% globally) 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.
Fordham concludes, “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. Companies in Asia, including China, are willing to increase investments in forensic data analytics and other technology-related tools in the detection as well as prevention of fraud.”