Pervasive global corruption leaves boards struggling to cope

EY LLC, Kyiv, Ukraine, 
Tuesday, June 17, 2014

Published by U.S.-Ukraine Business Council, 
Wash, D.C. Monday, May 23, 2014

u EY’ssurvey of over 2,700 executives across 59 countries highlights that nearly 40%of executives consider bribery and corruption widespread in their country

u Emergingrisks are not being taken seriously enough, nearly half of respondents considercybercrime a low risk

u C-suiteintegrity perceived to be in doubt with significant minority of respondentswilling to justify financial statement fraud

u Withmanagement struggling to respond to long-standing and emerging fraud risks,boards put under more pressure

LONDON, KYIV, 19 June 2014 – EY’s 13^th GlobalFraud Survey, Overcomingcompliance fatigue: reinforcing the commitment to ethical growth, has found concerning levels ofperceived fraud, bribery and corruption across the world. And, regardingemerging threats, despite the apparent global consensus on the significantscale of the threat of cybercrime, almost half of the respondents (48%)considered it to represent a very or fairly low risk to their business.

These survey findingssuggest that executives may not have a proper appreciation of cybercrimerisks.  Respondents see hackers as thebiggest concern (48%) and are underestimating the risk from organized crimesyndicates as well as foreign states.

The survey included in-depthinterviews with more than 2,700 executives across 59 countries, including chieffinancial officers, chief compliance officers, general counsel and heads ofinternal audit.  Nearly 40% of allrespondents believe that bribery and corruption are widespread in theircountry. (See Appendix 1 to this release for a list of country results.)  With respondents portraying a businessenvironment of pervasive corruption in many countries, it would appear thatmanagement and boards are struggling to respond to long-standing threats, letalone addressing emerging risks such as cybercrime.

David Stulb, Global Leaderof EY’s Fraud Investigation & Dispute Services (FIDS) practice says, “Withhigh-profile cybercrime incidents making headlines on a regular basis, boardsshould expect management to have a robust incident response strategy in place.Pressure on companies for timely disclosure of breaches is rising in manyjurisdictions as well, so these issues require attention from the legal andcompliance functions. The U.S. Securities and Exchange Commission isincreasingly focused on cyber risks as they relate to the integrity offinancial statements too, so audit committee members have to be alert totoday’s cyber threat environment.”

Is the C-suite making the right risk management choices?

The C-suite’s difficultiescan only be heightened by insufficient awareness of the risks they face.  Our survey found that they are less likelythan their teams to attend anti-bribery/anti-corruption (ABAC) training (38%)or participate in an ABAC risk assessment (30%).

This is alarming given thatthese executives are apparently exposed to circumstances which threaten theirintegrity on a regular basis.  Twenty-onepercent of CEOs said that they had been approached to pay a bribe in the past,compared with 10% of all C-suite interviewees.

Worryingly, given their rolein setting an ethical tone from the top, a significant minority (11%) of CEOsconsidered misstating financial performance to be justifiable in order to helpa business survive an economic downturn, compared with 6% of all respondents.

Stulb continues, “Given therisk of management overriding financial controls, the implications for boardsfrom these findings about C-suite integrity are serious. Enhancing boardconnectivity with business and finance leaders in the company – but below theC-suite – would be useful to confirm that the board is getting the full andaccurate picture. With regulators committing additional resources toprosecuting financial statement fraud, and cooperating frequently withprosecutors from other jurisdictions, the stakes have never been higher.”

David Remnitz, EY’s GlobalFIDS Forensic Technology Leader, adds: “Regulators are investing heavily tobolster their ability to mine big data from corporations for potentialirregularities. The latest data visualization tools can help to identifyrevenue recognition or procurement-related red flags earlier and moreefficiently. Boards should be asking how management is leveraging forensic dataanalytics to get the most from their big data in order to improve complianceand investigative outcomes.”

The need to reinvigorate compliance

The survey also found thatcompliance fatigue within businesses appears to have set in at a time when theycan least afford it.  In a regulatoryenvironment in which international cooperation is becoming more frequent, ourrespondents described a largely static internal compliance environment:

►    One in five businesses still do nothave an ABAC policy

►    45% of organizations have notintroduced a whistleblowing hotline

►    Less than 50% of respondents haveattended ABAC training

►    Less than a third of businesses areconducting anti-corruption due diligence as part of their mergers andacquisitions process.

“Enforcement ofanti-bribery/anti-corruption laws has become more intensive, with significantlystrengthened cross-border cooperation among regulators,” explains Stulb. “Withnew, tougher laws in numerous jurisdictions, and enhanced prosecutorial powersand bigger budgets for law enforcement in certain key geographies, this trendis not just a US phenomenon. Despite numerous recent high-profile prosecutionsof major multinationals and their executives, many companies continue to missopportunities to implement robust ABAC policies and risk assessments. Too feware regularly conducting anti-corruption due diligence. CEOs can do more tolead from the front on these matters, and boards and other stakeholders shouldintensify their efforts to challenge management to reinforce their commitmentto ethical growth.” 

-ends-

1.   Appendix

Results relating toperceptions of bribery and corrupt practices by country

Surveyquestion: “Can you tell me whether you think the following statement applies,or does not apply, to your country, or whether you don't know? Bribery/corruptpractices happen widely in business in this country”

Base: All respondents (2,658) - excludes Egypt,New Zealand and Israel as response numbers not sufficient

Note: Given that approximately 50 executives wereinterviewed in each country, these results are indicative and reflect theperceptions of those that were interviewed and do not necessarily reflect theviews of EY. For more comprehensive analysis of the perceived levels ofcorruption in particular countries, see Transparency International’s corruptionmeasurement tools, including the Corruption Perceptions Index, the Bribe PayersIndex and the Global Corruption Barometer.

2.    Notesto editors           

About the survey

Between November 2013 andFebruary 2014, our researchers – the global market research agency Ipsos –conducted 2,719 interviews in the local language with senior decision-makers ina sample of the largest companies in 59 countries.

AboutEY’s Fraud Investigation & Dispute Services (FIDS) practice

Dealing with complex issues of fraud,regulatory compliance and business disputes can detract from efforts tosucceed. Better management of fraud risk and compliance exposure is a criticalbusiness priority — no matter the industry sector. With our more than 2,600fraud investigation and dispute professionals around the world, we assemble theright multidisciplinary and culturally aligned team to work with you and yourlegal advisors. And we work to give you the benefit of our broad sectorexperience, our deep subject matter knowledge and the latest insights from ourwork worldwide.

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