Pervasive global corruption leaves boards struggling to cope

Ernst & Young, a global assurance, tax, transaction and advisory services firm, has released its 13^th global fraud survey, titled ‘Overcoming compliance fatigue: Reinforcing the commitment to ethical growth,’ which found concerning levels of perceived fraud, bribery and corruption across the world.

The survey also found that despite the apparent global consensus on the significant scale of the threat of cybercrime, almost half of the respondents (48%) considered it to represent a very or fairly low risk to their business.

These survey findings suggest that executives may not have a proper appreciation of cybercrime risks. Respondents see hackers as the biggest concern (48%) and are underestimating the risk from organised crime syndicates as well as foreign states.

The survey included in-depth interviews with more than 2,700 executives across 59 countries (Nigeria inclusive), including chief financial officers, chief compliance officers, general counsel and heads of internal audit.

Nearly 40 percent of all respondents believe that bribery and corruption are widespread in their country.

In Nigeria, 88 percent of the respondents consider bribery and corruption as widespread.

Linus Osita Okeke, West Africa leader of EY’s Forensic/Fraud Investigation and Dispute Services, says: “A comparison of the current results for Nigeria with the results of EY’s 12th Global Fraud Survey 2012 showed a significant increase in the proportion of respondents who perceive bribery and corruption to be widespread in Nigeria. 72 percent of the respondents in 2012 perceived bribery and corruption to be widespread, whereas the proportion rose to 88 percent of the respondents in 2014. The implication is that perceived bribery and corruption is getting worse.”

With respondents portraying a business environment of pervasive corruption in many countries, it would appear that management and boards are struggling to respond to long-standing threats, let alone addressing emerging risks such as cybercrime.

David Stulb, global leader of EY’s Fraud Investigation and Dispute Services (FIDS) practice, adds: “With high-profile cybercrime incidents making headlines on a regular basis, boards should expect management to have a robust incident response strategy in place. Pressure on companies for timely disclosure of breaches is rising in many jurisdictions as well, so these issues require attention from the legal and compliance functions. The U.S. Securities and Exchange Commission is increasingly focused on cyber risks as they relate to the integrity of financial statements too, so audit committee members have to be alert to today’s cyber threat environment.”

Twenty-one percent of CEOs said that they had been approached to pay a bribe in the past, compared with 10 percent of all C-suite interviewees.

Worryingly, given their role in setting an ethical tone from the top, a significant minority (11%) of CEOs considered misstating financial performance to be justifiable in order to help a business survive an economic downturn, compared with 6 percent of all respondents.

Stulb continues: “Given the risk of management overriding financial controls, the implications for boards from these findings about C-suite integrity are serious. Enhancing board connectivity with business and finance leaders in the company – but below the C-suite – would be useful to confirm that the board is getting the full and accurate picture. With regulators committing additional resources to prosecuting financial statement fraud, and cooperating frequently with prosecutors from other jurisdictions, the stakes have never been higher.”

The survey also found that compliance fatigue within businesses appears to have set in at a time when they can least afford it. In a regulatory environment in which international cooperation is becoming more frequent, our respondents described a largely static internal compliance environment:

“Enforcement of anti-bribery/anti-corruption laws has become more intensive, with significantly strengthened cross-border cooperation among regulators,” explains Stulb. “With new, tougher laws in numerous jurisdictions, and enhanced prosecutorial powers and bigger budgets for law enforcement in certain key geographies, this trend is not just a US phenomenon. Despite numerous recent high-profile prosecutions of major multinationals and their executives, many companies continue to miss opportunities to implement robust ABAC policies and risk assessments. Too few are regularly conducting anti-corruption due diligence. CEOs can do more to lead from the front on these matters, and boards and other stakeholders should intensify their efforts to challenge management to reinforce their commitment to ethical growth.”

Okeke adds: “The potential benefits derivable by Nigeria from her new status as the largest economy in Africa could be eroded if conscious efforts are not made to curb the menace of corruption in the country. This is because many countries are criminalising bribery of foreign government officials by corporates engaged in international businesses, but have footprint in their jurisdictions. An interesting aspect of the international law enforcement trend is that many jurisdictions seem to be getting attracted to the notion that there is significant revenue from enforcing anti-corruption laws, especially in the light of the significant fines that the US law enforcement had imposed on many corporates of diverse nationalities for violating the US Foreign Corrupt Practices Act. This seems to explain the trend whereby countries provide for unlimited fines for violation of anti-corruption laws.”