Accountants as Partners in Crime Prevention & Reporting
Samantha McDonough | May 21, 2015 |
“For those who pay bribes, or don't do enough to prevent them, the world is getting smaller every day,” says the Foreign and Corrupt Practices Act Blog.
Commentators on economic crime have recently observed an upswing in both enforcement of anti-corruption legislation and compliance with laws and regulations around the globe. Even North Korea recently announced the creation of an anti-corruption agency. Laws and regulations are instigated almost every day, somewhere in the world. The success of these laws relies on their enforcement which, in turn, relies heavily upon the acuity of those working in business and their ability to spot suspicious activity. Accountants are in a good position to identify activity that may be indicative of corruption through their preparation of financial information and their ability to spot anomalies or irregular activity.
The recently published 2014 IFAC Global SMP Survey of accountants operating in small- and medium-sized practices (SMPs), indicates that around 25 percent of respondents have had experience with economic crime, the most prevalent being asset misappropriation/fraud and bribery. The concentration of these types of crime was higher in Africa, Middle East, and the Far East but not insignificant for the other countries and regions. Whether you are an in-house accountant or an accountant with small- and medium-sized entity (SME) clients, your role is vital in combatting corruption, but you need to be able to spot it.
Whatever internal controls and awareness training you may have introduced into your company, as soon as one door closes to corrupt practices, another opens, and it is a challenge to remain ahead of those involved in economic crime. Is a suspicious practice illegal, or is it simply a different way of doing things? Is there a company policy that underpins the activities that may appear questionable to you? Is corruption embedded in the company practices or is it an individual acting on his/her own? The UK Serious Fraud Office publishes corruption indicators, and wherever you are in the world, you would do well to look at the equivalent organization in your jurisdiction. The information will help you to be more vigilant and to identify questionable activity.
Some of these corruption indicators are:
- Payments Abnormal cash payments may not be documented as payments made through a third-party company, country, or network of “shell companies,” and may be difficult to reconcile. There may be pressure exerted for payments to be made urgently or ahead of schedule. What constitutes an abnormally high commission percentage? You need to know this in order to spot one. A payment split between more than one account may suggest a bribe has have taken place.
- Tendering Process While bypassing normal tendering or contracting procedures or diverging from company policies may be easy to identify, it may not be as straightforward if there are barriers around specific roles or departments that are key in the tendering or contracting processes. Unjustifiable preferences for certain contractors during the tendering period and lack of due diligence checks may only be identified if the right questions are asked.
- Actions by Individuals Look for an individual who never takes time off for holidays or illness, or insists on dealing with specific contractors himself or herself. If you become aware of an individual making unexpected or illogical decisions on projects or contracts, this may be cause for concern. Unusually smooth progress of contracts, projects, or other activities where an individual does not have the expected level of knowledge or expertise may also be signs that something isn’t right. Company procedures or guidelines not being followed for the payment of expenses or company loans (for example, for school fees, car loans, or similar).
- Company Decision Making Missing documents or failure to make records of meetings may alert you to dubious practices. Institutionalized corruption can be difficult to deal with because you may be up against groups of employees who regard corruption as acceptable and may use pressure and coercion against others. If the tone from the top sends this message, it can be difficult to combat. It may be considered acceptable to hold private undocumented meetings with contractors or companies hoping to tender or receive lavish gifts or “facilitation payments.”
The final tier, of course, is your willingness to take responsibility or to have the confidence to act on your suspicions. Striving to do the right thing can put you in an isolated position, but there are many resources on the Global Knowledge Gateway to support you in your adherence to your Code of Ethics. Many Codes are based upon the IESBA Code of Ethics for Professional Accountants,which is published in the Handbook of the Code of Ethics for Professional Accountants. IFAC member bodies also have their own resources—for example, the Chartered Institute of Management Accountants (CIMA) Code of Ethics is accompanied by ethics resources, which members of IFAC and individuals are welcome to access.
See the resources on the Global Knowledge Gateway to help employers and clients manage risk and Cindy Fornelli’s viewpoint, An Abundance of Resources to Fight Financial Reporting Fraud.