Disconnect between policies and practice exposes companies to greater fraud and corruption risks: Er
Monday, 30 September 2013 01:09
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Disparity between policy, enforcement and execution is hampering efforts to tackle fraud and bribery in Asia-Pacific. Nearly half (48%) of the executives polled for EY’s first Asia-Pacific Fraud Survey titled “Building a more ethical business environment,” said their companies’ anti-bribery and anti-corruption policies are good in principle but do not work well in practice.
Asia-Pacific Leader of EY’s Fraud Investigation & Dispute Services practice Chris Fordham believes while there is disparity between policy and practice when it comes to anti-bribery and anti-corruption, progress is being made in Asia-Pacific with 40% of respondents stating that their company does have an anti-bribery policy or code of conduct.
“This research indicates fraud and corruption is on the radar for companies, however, when we compare the results with EY’s last Global Fraud Survey in 2012 (81%) and our Europe, Middle East, India and Africa (57%) survey published earlier this year, companies in Asia-Pacific are still lagging behind,” said Fordham.
Disconnect creating false illusion of protection
The disconnect between theory and reality also indicates that many organisations could be under a false illusion that they are adequately addressing fraud, bribery and corruption issues when in reality they are still exposed to substantial risks. Indeed our survey results demonstrate that these risks are rising given the challenging economic environment, with 19% of respondents reporting that bribery and corrupt practices have increased.
For international companies with operations in the region, this complacency could expose them to significant regulatory risk. As the Global Leader of EY’s Fraud Investigation & Dispute Services practice David Stulb noted: “The US Securities and Exchange Commission and Department of Justice remain focused on corporate conduct in the Asia-Pacific region. Companies would be well served to refresh their risk assessments and conduct more robust compliance reviews, including transactional testing, to ensure that headquarters’ policy is being followed locally in practice.”
With Asia-Pacific corporates expanding their operations outside the region, their exposure to higher risk markets and, in some instances, more aggressive enforcement than their home market, increases the importance of their compliance efforts. Fordham said: “Companies in Asia-Pacific need to do more when it comes to anti-bribery and anti-corruption particularly as many of these markets are expected to play a leading role in the global economy. These companies cannot afford to lag behind on this issue.”
While the EY Asia-Pacific Fraud Survey revealed a disconnect between theory and practice, it also highlighted methods and tools available to senior management to help them tackle complex fraud and bribery issues.
For example, in Singapore, perceived as one of the least corrupt countries in the world, over 59% of the respondents say that their anti-bribery policy is good in principle but does not work well in practice, compared to the Asia-Pacific regional average of 48%.
“Organisations wanting to build a robust compliance capability should be sure to conduct anti-corruption due diligence when executing acquisitions, to support whistleblowing programs to uncover unethical activities, and to deploy forensic data analytics to detect fraud. Our survey shows that executives are willing to use these tools; for example, 81% of respondents said that they would be prepared to use a whistleblowing scheme, yet only 32% said their company has one in place,” commented Fordham.
Technology underused
Fordham believes these techniques can also be used as preventative measures but many companies are not proactively utilising technology to its full capacity to mitigate fraud risks.
In Indonesia, close to 30% of respondents say that leading anti-fraud technologies, such as transaction monitoring or forensic data analytics, are not being used; whereas 54% of the respondents strongly agreed that the use of technology to look at company transactions would have more success in detecting fraud, bribery and corruption.
“Despite a broad understanding of the significant capabilities that forensic technology has to offer in the fight against fraud and corruption, the survey reveals that this tool is rated as only the third best way to proactively detect fraud and corruption, ranking after stronger internal audit team and stronger government regulations,” said Fordham.
The survey of eight markets also indicated that the risk of financial statement fraud remains a challenge in the region with 11% of Asia-Pacific respondents claiming that bringing forward recognition of revenue or reducing depreciation costs is a common practice.
Anti-fraud measures falling by the wayside
The polled respondents also believe that compliance and anti-fraud measures can fall by the wayside when market conditions are volatile or challenging; with 27% of respondents agreeing that company management is likely to take shortcuts to meet targets in harsh economic conditions.
Ernst & Young Country Managing Partner Sri Lanka Asite Talwatte commenting on the results of the survey said: “Shareholders expect management to take responsibility for protecting the business by implementing robust anti-fraud and anti-bribery programs. Boards must challenge management to ensure they are focused on high risk areas and are providing adequate resource to their internal audit and compliance functions.”
In conclusion Talwatte stated: “If anything the last few years have shown us that compliance is not something companies should only focus on during the good times. If companies in Asia-Pacific including in Sri Lanka really want to look at ways they can reduce their exposure to fraud and corruption, they should be looking at it as a holistic issue and addressing it across all levels of the organisation.”
