The survey of CFOs, heads of legal, compliance and internal audit teams finds the majority (78%) of UK firms don’t employ specialist monitoring software IT systems as part of their fraud, bribery and corruption investigations.
The UK lags behind Western Europe in the use of specialist monitoring software and IT systems, which are also far more common globally where 43% regularly use such systems.
The UK Bribery Act specifically addresses the need for third party due diligence for business partners or outsourced services. For those that perform third party due diligence, software or technology was least favoured to carry out such checks (45%) compared to approved supplier databases checks on ownerships and the use of external providers.
John Smart, partner with Ernst & Young’s Fraud Investigation & Disputes Services Practice, explained: “With more sophisticated frauds, if companies do not have a basic monitoring system in place, particularly those in retail and with a crucial online presence, they are at real risk.”
He added: “The use of technology to analyse large quantities of data can improve the cost-effectiveness of performing these audits of third parties that might be involved in bribery and corruption in particular. Not only are costs reduced, but the likelihood of identifying concerning behaviour is increased.”
Forensic data analytics can help to determine which third parties to select for review and to identify ongoing areas for investigation.
Smart continued: “Bribery and corruption schemes often involve circumventing existing accounting rules. As a result, traditional testing approaches may not be effective in identifying high-risk transactions. Advanced analysis tools, such as text mining, anomaly detection, visualisation tools and statistical techniques can be more effective at identifying issues.”
More than half of UK senior leaders would not rule out unethical conduct to survive
Ernst & Young’s 2012 Global Fraud Survey has also shown that more than half of UK executives would not rule out unethical activities to survive a downturn despite stricter bribery laws.
The survey suggests that 54% of UK executives would not rule out unscrupulous behaviour, such as the publication of erroneous financial statements or providing personal gifts or cash to secure business. That’s despite the UK Bribery Act coming into force, under which firms face criminal fines or imprisonment of executives.
Ernst & Young found that the number of executives who would provide personal gifts to secure business almost doubled in two years. A few even said they would give cash payments to either win or retain business during the downturn.
The findings show high risks of fraud and bribery despite 90% of UK companies having set up whistleblowing hotlines, compared to less than half of companies globally. Despite this, UK companies have shown weakness in punishing bribery and corruption. Only 24% have taken any action compared to 40% on the global scale.
Equally, only just over a quarter of executives (26%) consider that UK enforcers are willing to prosecute cases of bribery and corruption and are effective in securing convictions.
The survey found that 42% support regulators using financial incentives to encourage whistleblowers following similar provisions in the US Dodd-Frank Act.
Growth and ethical business conduct: competing priorities?
John Smart stated: “Growth and ethical business conduct in today’s markets can appear to be competing priorities, and many executives underestimate the serious risks involved. Boards need to put pressure on management to conduct more frequent and more robust anti-bribery and anti-corruption risk assessments, and they require more tailored reporting in order to drive improved compliance.”
He also said: “There needs to be a more credible alternative for employees to report concerns. Companies should ensure effective mechanisms for internal whistleblowing – for example, 24 hour hotlines in local languages – but also that the corporate culture encourages internal reporting of issues.”
Smart stressed: “Businesses must also be aware of heightened scrutiny and ensure clear processes are in place for prompt investigation and communication with enforcement agencies.”
CFOs under the spotlight
CFOs are among the most influential executives reporting to the Board on fraud, bribery and corruption issues.
Comments emanating from nigh on 400 global CFOs surveyed, however, suggest that a minority could be part of the problem.
The Ernst & Young survey found 15% of CFOs would be willing to make cash payments to win business and 4% said they would be willing to miss-state financial performance.
Less than half had personally attended anti-corruption or bribery training. 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.
“The CFOs we work with are committed to extremely high ethical standards,” outlined Smart, “but the CFOs’ influence within companies means they have a key role in preventing fraud, bribery or corruption. They must redouble their efforts to set the right tone.”
As far as Smart’s concerned, those CFOs also need to ensure that they have performed a thorough risk assessment around fraud, bribery and corruption, most notably hwhen it comes to high risk markets.”
