There is a concerning escalation in the number of senior executives, including Chief Financial Officers, willing to make cash payments to win business.
Ernst & 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 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.
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 significantly higher in rapid-growth markets (e.g., Brazil - 84%, Indonesia - 72%, Turkey - 52%).
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.
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% said they would be willing to misstate financial performance.
Ernst & Young notes that 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 that we work with are invariably committed to extremely high ethical standards," says David Stulb, Global Leader of Ernst & Young’s Fraud Investigation & Disputes Services practice. "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."
Stulb says CFOs need to ensure that they themselves are trained, that they increase their awareness of the risks while clearly demonstrating support for anti-corruption initiatives.
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%) 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% either always or very frequently conduct it pre-acquisition. Elsewhere the frequency is much lower (32% in China, 9% in Nigeria).
"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," says Stulb.
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