The proportion of Australian executives who believe bribery and corrupt practices are widespread has risen sharply over the past two years, from just 8% in 2014 to 28% today, according to the findings of EY’s 14th Global Fraud Survey. This increase is in contrast to the global results which remained relatively flat (38% in 2014 and 39% in the latest survey).
The 2016 report, Corporate misconduct – individual consequences, highlights a worldwide clamor for enhanced transparency at a time of increased geopolitical tensions and heightened volatility in financial markets. The escalating threats of cybercrime, terrorist financing and, more recently, the revelations regarding widespread possible misuse of offshore jurisdictions, have increased pressure on governments to act and companies to identify and mitigate fraud, bribery and corruption issues.
Conducted between October 2015 and January 2016, the survey of nearly 3,000 senior business leaders from 62 countries and territories, including Australia, highlights overwhelming corporate support for enhanced beneficial ownership transparency, with 91% of executives globally and 95% in Australia recognising the importance of establishing the ultimate beneficial ownership of entities with which they do business.
Rob Locke, EY Fraud Investigation & Dispute Services (FIDS) Managing Partner for Oceania, said enhanced transparency is clearly a focus of broad public interest.
“With the continuing anti-corruption enforcement focus on third-party conduct and recent revelations on the possible misuse of offshore financial structures, business leaders are right to be focused on securing a deeper understanding of their clients, partners and suppliers,” Mr Locke said.
“Increased transparency is, however, only one facet of the solution to a problem that shows no sign of abating. While the proportion of Australian executive who believe that that bribery and corrupt practices happen widely in their country is still lower than the global average, the significant increase reported over the past two years would suggest executives locally are waking up to the risks and increasing their focus on the issue. But the survey results show there is still more work to be done.”
“In a question introduced in this year’s survey, 32% of respondents globally and 25% in Australia reported that they have had personal concerns about bribery and corruption in their own workplace.”
Coordinated efforts by regulators to root out corruption
Regulators recognise the threat that bribery and corruption pose to a financial system already under stress and are increasingly cooperating across borders to hold individuals accountable for illegal acts. Such enforcement efforts appear to be heavily supported, with 88% of Australian and 83% global survey respondents agreeing that prosecuting individuals will help deter future fraud, bribery and corruption.
However, with 25% of Australian respondents admitting that they could justify unethical behavior to meet financial targets, and 16% of finance team members below the CFO globally ready to justify making a cash payment to win or retain business, those executives responsible for ethics and compliance appear to be facing a significant challenge if they are to keep their organisations clear from the scrutiny of prosecutors.
“Increased levels of global cooperation between law enforcement agencies are making it harder for fraudsters and bribe-payers to evade prosecution. However, with respondents indicating that such misconduct is showing no sign of abating, companies continue to be exposed to major risks driven by the illegal actions of a small minority of employees.”
“Better use of technology is certainly part of the answer and more can be done to leverage forensic data analytics into the business to manage these risks and improve compliance and investigative outcomes. But businesses also need to continually evaluate the effectiveness of controls over high risk business processes, such as procurement and payment.”
Robust compliance, robust growth?
Expanding into new markets is essential for most companies, yet such expansion brings new and less familiar risks. Only half of survey respondents globally said they utilised technologies such as forensic data analytics to identify and mitigate risks.
The research also shows that Australian companies are frequently failing to take appropriate steps to respond and reduce their risk exposure. One in five do not assess country-specific corruptions risks before making investments and a quarter do not assess industry-specific risks.
“On a more positive note though, the survey found Australian companies were the most likely to identify third parties, such as vendors, agents, distributors and joint venture partners, as part of their anti-corruption due diligence. In fact, only 3% of Australian respondents said they didn’t do this, much lower than the global average of 19%,” Mr Locke said.
Innovation is critical to responding to emerging risks
Whistleblowers remain a critical source of information on alleged misconduct. According to this year’s survey, 80% of Australian companies have whistleblower hotlines in place (higher than the global average of 55%). Regulators welcome such tips and, in some jurisdictions, whistleblowers are offered substantial monetary rewards. Yet such mechanisms are not always effective. Australian survey respondents report barriers to using such mechanisms: 13% cite that loyalty to colleagues would deter them from reporting an incident of fraud, bribery and corruption and 10% cite loyalty to their company as a deterrent.
“What we are seeing clearly is that some employees, with widely varying motivations, are prepared to misappropriate – or enable others outside the firm to have access to – the confidential data of their companies,” Mr Locke said.
“The balance between data privacy and security creates further complications. Dealing with such cyber and insider threats should be a top priority for management and boards. Yet globally, 59% of CFOs view cybercrime as a low risk – a perspective that deserves robust challenge.”