Corporations still blasT about ethics, says E&Y survey

Ernst & Young reports that many CEOs are lackadaisical about stamping out the evils of corruption.
Ernst & YoungÆs survey of fraud risk in emerging markets reveals that corporations are still slow to systematise their combating of bribery and corruption. 42% of companies of the 500 corporate leaders surveyed had no anti-fraud policy in place.

27% of respondents in organisations with links outside their home market do not even consider anti-fraud measures when they enter a new market.

They find that the most popular types of fraud scams being worked in emerging markets are corruption and bribery, misappropriation of assets and internal fraud in collusion with third parties. Manipulation of financial statements, a la Enron, ranks just behind.

Not that the corporations seem very fazed about it. Nearly nine out of 10 donÆt bother to train their staff on the differences between facilitation fees and corrupt payments. Nearly as many companies dispense entirely with the need for training staff in any aspects of fraud.

US companies are bound by the Foreign Corrupt Practices Act, which means they are not allowed to pay bribes in order to win deals. Some have pointed out that this places them at a disadvantage to companies from other jurisdictions, whose prohibitions are less stringent.

ôCompanies in certain jurisdictions are not necessarily interested in ethical matters because they have had an attack of conscience,ö says Rob Morris, Far East Asia head of fraud investigation and dispute services at E&Y. ôBut because they have a commercial reason. Perhaps they might want to raise money in a foreign market, one which places a higher value on corporate governance.ö

How to handle whistleblowers is another source of ambivalence for the corporate titan. Whistle-blowing, snitching on your companyÆs dodgy conduct, was another feature of the Enron implosion. Ernst and YoungÆs fraud investigation and dispute services argues that whistleblowers are potentially useful, rather than a rebellious nuisance.

It suggests a whistleblowers hotline, so that the anonymous troublemaker can phone through his grievance to a desk staffed either by internal personnel or even Ernst & Young staff. The point of the hotline is that if something heinous emerges, then the next step is not just to create a good cover-up, but to find a solution.

Ernst & Young points out that having an anti-fraud policy merely for decorative purposes is a waste of time, and that it has to be three-dimensional.

ôWe provide a service where Ernst and Young staff will take the hotline calls,ö says Rob Morris. ôWe are working for the company, and therefore in the event of finding anything of concern, our first line of communication is to the client, but if a serious crime emerges, and the company refuses to disclose the matter, then, yes, we may feel obligated to go to the relevant authorities or even the police. If a company has in place an anti-fraud policy, then it must apply it effectively and not have it just for show.ö

According to Transparency International, Asia and the worldÆs most corrupt country is Bangladesh (joint world champ alongside Chad). The runner-up in Asia is Pakistan; Indonesia takes the bronze.
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