Ernst and Young (EY) have recently released its 15th Global Fraud Survey and, in light of current events, its findings are both disappointing and unsurprising.
Levels of fraud and corruption have not been significantly reduced over the past few years despite growing public awareness and strengthened the legislation. Nevertheless, advances in technology may pave the way to creating more robust anti-fraud and anti-corruption systems that comply with legislation.
The report’s findings paint a somewhat harsh picture of businesses that continue to carry on with their less than legal behaviour despite growing public and government awareness. In fact, the EY report shows that business leaders and professionals are not particularly inclined to curb their bad behaviour at the risk of punishment. Among some of the main revelations are:
The legislation is slow to enforce itself among businesses – Even with the establishment of new laws, such as the Foreign Corrupt Practices Act in the US (1977), the EY report only sees an increase in actual enforcement as from around 2004!. Likewise, in China, similar anti-corruption legislation began in 2013 but only saw appropriate enforcement recently in 2017. Further, Australia, despite its status as a prosperous first world nation, sees itself at the bottom of this particular list with only ‘modest’ enforcement by regulators and the government, often in the form of reactive legislation that creates royal commissions investigating specific issues.
Younger professionals are more likely engage in fraudulent and corrupt behaviour – Despite growing social awareness among Millennials (especially with regards to social justice), it seems such awareness does not apply to bribery and fraudulent business activity. The EY report suspects that increasing pressures on younger professionals to work harder and achieve more may lead them to take certain ‘shortcuts’ where needed to keep up with their older peers.
Corporate culture has underdeveloped integrity globally – Despite many CEOs and senior business members being aware of the importance of complying with anti-corruption and anti-fraud laws, the sentiment remains all talk but no walk. Risk management for many companies is mainly reactionary, with policy and systemic change only occurring when problems arise. Further, any systemic change is not well communicated to staff. One of the main issues the EY report discussed was that not everyone in business fully understood their obligations with regards to business integrity and further, didn’t always know where to go if they wanted to learn more about it. In short, many businesses ‘passed’ the buck of compliance to someone else within the company or business on the assumption that someone else would take care of it.
Technological advances can be easily taken advantage of – Advances in software development mean two things: the first is that businesses can develop automated systems that automatically comply with legislation and can be developed to flag inconsistencies as they occur; or, the software can be developed to exploit businesses that do not have rigorous integrity and compliance systems.
One of the most salient points of the EY report is that the perception of corruption and fraud being a problem in developing nations is false. While there may still be more fraudulent and corrupt business activities occurring in developing nations, such behaviour certainly has not been reduced in developed nations either. Relatively wealthy and well-regulated countries such as Japan and Australia are examples of the lack of integrity in business practices in developed nations.
The EY report is a frank and somewhat brutal assessment of business practices globally and should hopefully be a wake-up call to all business owners to start thinking about integrity as a genuine policy issue. Businesses cannot afford to react to fraud and corruption scandals in the future. This is especially relevant in light of the many unpleasant revelations made by the current Royal Commission on Banking Practices.
Integrity should be integrated into every corporate culture. As the EY report states, businesses that comply with the law, display internal integrity and hold themselves accountable to their customers and the law do much better than those that don’t.