Helping SMEs Handle the Risks of Bribery and Corruption

Jason Piper | December 9, 2019 |


What’s the issue?

Small and medium sized enterprises (SMEs) make up most of the world’s business population, employ most of its workforce and create most formal jobs in developing markets[1]. The health and vitality of these businesses, and of those who own them and work in them, is clearly central to a healthy society.

But they face many challenges and one which should be avoidable, but in all too many instances isn’t, is corruption. Bribery and corruption have an estimated direct annual global cost of $3.6 trillion paid in bribes every year. The indirect cost in substandard products, services and infrastructure is beyond calculation. The signs of grand corruption – schools demolished but not rebuilt[2], healthcare funds directed to construction costs[3] – are all too well known. The impact on SMEs receives far less attention, but again the indirect impact of a culture of corruption is perhaps even greater than the direct financial cost.

What can be done?

ACCA has undertaken global surveys in 2013[4] and 2019[5], following up on initial UK work in 2007[6], to try to understand the awareness of SMEs to bribery and corruption risk, and their attitudes towards it. One common theme in comments from respondents is that SMEs are all too aware of the damage that is done to the whole of society by bribery and corruption.

Globally, 64% of respondents think bribery and corruption is a concern for SMEs, although that figure masks significant regional variation. Only in Europe did concern fall below half, at 42% - while Sub-Saharan Africa and Central America showed greatest concern, at 83% and 84% respectively.

“Bribery and corruption disrupts the fair market opportunity and competition trajectory, thereby giving opportunity to low-performing SMEs… bribery and corruption brings about poor service delivery and less regards for quality of services and quality of life in general.” ACCA survey respondent, sub-Saharan Africa

"Many SME’s never see the light of the day because they were never granted relevant operational licenses since they could not engage in bribery and corruption." Survey respondent, sub-Saharan Africa

"Bribery and corruption is not only [a] concern for SMEs. It is [a] concern for society as a whole which continuously erode[s] ethical values and norms." Survey respondent, Asia

"There is not enough exposure to the existence of this. People see corruption in local councils and think if it’s okay for the government, then it’s okay for all." Survey respondent, Europe

Too often there’s a feeling of powerlessness, that corruption is endemic and there’s nothing to be done – and that’s a global phenomenon, from Oceania to northern Europe. SMEs need, and want, help to address the challenge, and it comes in many forms.

High profile cases of prosecution, ethical codes of practice to which business can sign up and guidance from professional and trade associations all polled strongly as “most effective measure to support SMEs” – but the single most effective tool, attracting over ¼ of first preferences, and nearly 1/3 of second preferences, was the implementation of laws granting whistleblowing rights to employees and businesses if they come across bribery and corruption. [Fig 5.17]

 

This transparency will rely on more than the dry words of a statute creating a legal right – individuals will need the mechanisms to make the disclosures, and support to face the consequences. SMEs exist in an ecosystem of larger organizations, as part of global supply chains, and in a regulatory framework populated by local and national governmental bodies. If reporting is to be effective, those larger partners, who have the resources to provide the reporting mechanisms, and the influence to effect change, will need to invest in the helplines and investigation teams to make them work.

How can accountants help?

Before SMEs can highlight corrupt practices, they need to be able to recognize them. Nearly 60% of respondents globally thought SME’s had insufficient guidance and advice to help them deal with bribery and corruption with a majority considering the situation adequate only in North America. That is reflected in the figures around understanding of the legal definitions – while a majority of respondents in every region think that SMEs generally understand the local definition of bribery and corruption, when faced with distinguishing potentially complex scenarios around business entertaining or consultancy and facilitation fees from unacceptable bribery and corruption, a minority of respondents were confident in SMEs’ ability to recognize illegal behavior. [Fig 5.4]

 

Globally, 76% of respondents said that SMEs would welcome advice from their accountants on the policies and practices needed to deal with possible cases of bribery and corruption [Fig 5.13]. And businesses see benefits from implementing such policies too – 75% would expect and improved reputation for high standards of business conduct, 73% increased customer confidence in the business, and 79% a reduced risk of breaching legal requirements, or giving rise to reporting obligations by 3rd parties. [Fig 5.14]


Nonetheless, a majority of respondents still though that to take such a principled position might still cost the business trade or opportunities – and that is a statistic that we should all work together to change, whether working in government, in business or in advisory practice.

 

[1] https://www.worldbank.org/en/topic/smefinance World Bank figures
[2] https://www.youtube.com/watch?v=gyExBtez5EY “Project No. 1”, an investigation into unexplained payments in an Iraqi schools reconstruction project
[3] http://ti-health.org/content/lubowa-hospital-news-uganda-open-contracting/
[4] Davies, J. and Mirkovic, R. (2013), Combating Bribery in the SME Sector https://www.accaglobal.com/ab44>, accessed 6 September 2019
[5] ACCA (2019) Combating bribery in the SME Sector https://www.accaglobal.com/content/dam/ACCA_Global/professional-insights/CombatingBribery2019/JasonPiper.CombatingBriberySMEsector.pdf accessed 19 November 2019
[6] ACCA (2007), Bribery and Corruption: The Impact on UK SMEs https://www.accaglobal.com/content/dam/acca/global/PDF-technical/small-business/tech-ms-bac.pdf>, accessed 8 September 2019

 

Jason Piper

Policy Lead, Tax and Business Law – Professional Insights, ACCA

Jason leads ACCA’s policy work on the closely related fields of tax and business law, considering both the direct impacts of developments in each field and the wider implications for business and society as a whole. His policy and research interests cover all aspects of business form and their regulation, how they interact with tax systems and the wider economic and social environment, including the influence of technological change on both the regulatory and economic environment for entrepreneurs and criminals. Jason has a first degree in Law with European Legal Systems from the University of East Anglia, and a Master’s Degree in International Commercial Law from the University of London. He is also a chartered tax adviser.

 

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