Fraud and corruption viewed as widespread in fast-growing markets

Volatility in global business is presenting challenges on several fronts. Geopolitical instability, a steep drop in oil prices, and currency changes are three major challenges.

Pressure to find revenue in rapid-growth economies – an expansion that carries higher risk – has the potential pitfall of fraud, according to a survey report from EY of 3,800 workers at companies in Europe, the Middle East, India, and Africa.

While overall sentiment about the level of fraud activity is down from a previous survey two years ago, plenty of countries still seem to be hotspots for corruption.

More than half of all respondents, and 61% of respondents in what are considered rapid-growth markets, believe that bribery and corruption are widespread in their country.

The top five countries, in terms of percentage, where workers believe bribery and corruption are widespread, are Croatia (92%), Kenya (90%), Slovenia (87%), Serbia (84%), and Portugal (82%). Companies that set a proper tone about ethical behaviour seem to be doing a better job avoiding corruption. Companies that allow themselves to become a victim of “compliance fatigue” open themselves up to more risk.

For example, 61% of respondents who rate their company’s ethical standards as very good say that senior management frequently communicates about the importance of maintaining high ethical standards and behaviour when conducting business. Amongst those who rate their company’s ethical standards as poor, just 18% say senior management frequently communicates about the importance of business ethics.

Forty-two per cent say their company does not have an anti-bribery policy in place or are not aware of a policy. But amongst the respondents who are aware of such a policy, 91% say senior management has communicated its commitment to anti-bribery efforts.

Nearly one-fourth of respondents report that their company does not have a whistle-blower hotline.

Thirty-seven per cent say that companies in their country often report financial performance as better than it is, and 20% of senior managers say they have heard of their companies either under-reporting costs or recognising revenue early in order to reach short-term financial targets within the past 12 months.

Sometimes, the managers’ impression of their ability to stress ethics does not mirror the opinion of employees. Forty-four per cent of senior managers believe they are communicating the importance of high ethical standards, but just 30% of workers agree.

New markets, new business units, new risks

Among business units created in the past two years, the pressure to grow seems especially intense. Among respondents from those newer units:

• 26% say that negative financial performance compared to plan is not shared in an open and transparent way with head office management.
• 25% say offering personal gifts or cash payments can be justified if they help a business survive.
• 22% say offering entertainment can be justified if it helps a business survive.

Among business units that are older than two years, the number of respondents agreeing with the above statements is lower in all cases.

Related CGMA Magazine content:

“The World’s Top Economic Risk Hotspots”: Four economic risk hotspots emerge as dramatic changes in the oil price and exchange rates create winners and losers among the world’s economies.

“Ethical Performance Moves Up on the Corporate Agenda”: Ethical performance is an increasingly important consideration for companies, and its prominence is set to grow further over the coming years, according to 2014 CGMA research. Though the majority of companies do have an established policy on ethical conduct, many fail to regularly communicate it to their staff.

—Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.