Accountants are on the front line in combatting corruption

An organisation that says it’s never had a fraud just hasn’t discovered it yet.

Accountants globally are leading the fight against corruption, and locally every accountant has a part to play.

Corruption is a global problem and its impact is mind-boggling.

The World Economic Forum (WEF) puts the overall cost of corruption at roughly US$2.6 trillion – about 5 per cent of global GDP. 

Clearly, corruption adds hugely to the cost of doing business (WEF estimates 10 per cent), but according to a new International Federation of Accountants (IFAC) study conducted by the Centre for Economics and Business Research, The Accountancy Profession – Playing a Positive Role in Tackling Corruption, professional accountants are at the frontline in thwarting it.

“Corruption is an economic cancer that disproportionately impacts those least able to absorb its malignancy,” says IFAC CEO Fayezul Choudhury. “The accountancy profession – acting in the public interest – is an important part of the cure.”

One of the key findings of the study is that a higher percentage of accountants in the workforce correlates to better outcomes in Transparency International’s global Corruption Perceptions Index.

“The accountancy profession is a crucial part of strong national governance architectures that confront corruption, in partnership with good government and strong businesses,” Choudhury says. “Vitally, the study shows professional ethics, education and oversight – at the core of the global accountancy profession – are key to tackling corruption.”

KPMG Australia partner and leader of its forensic practice Gary Gill agrees, adding: “It really does fall to the board and management of a business to ensure there is an appropriately transparent culture where people are encouraged to raise concerns. There has to be a focus on ethics and doing business the right way.

“From an accountant’s perspective, this means walking the talk – being seen to be doing the right thing by holding people accountable, especially those in senior roles who might be circumventing the rules. Even small transgressions can’t be overlooked, because the tone is set from the top.

“It’s up to accountants to focus on bad behaviour and call it out.”

Watch out for red flags

Large organisations usually have gifts and benefits registers that stipulate what individuals can and cannot accept from external suppliers and mandate that they are all recorded. Gill says, however, that many mid-tier corporates and small- to medium- enterprises (SMEs) do not, making the procurement and the sales sides of such businesses especially prone to corruption.

He warns that red flags include people failing to follow procurement policy guidelines by not obtaining competitive quotes, or always going to the same suppliers.

“It doesn’t necessarily mean there is corruption, but if relationships with suppliers are too close it can lead to it. If someone is receiving gifts from suppliers, entertainment at sporting events or trips overseas, you need to ask why.”

An employee not taking annual leave is another classic alarm signal.

“They don’t want to take leave because they need to make sure their tracks are covered,” Gill says. “Invariably, it all comes undone when they do, or are off sick, and somebody else steps in and discovers the fraud.”

Globally, Choudhury insists meaningful progress against corruption needs continued strong cross-sector collaboration, reinvigorated international interest in public financial management, and greater adoption of high-quality international standards on financial reporting, auditing and ethics.

Professional Development: Detecting fraud using data analytics: this course covers the role data analytics has in the identification of uncommercial transactions for later review and, if justified, investigation. It is one of the key ways in which uncommercial transactions can be identified.

Beware complacency and collusion

Locally, Gill says complacency is one of the biggest assets fraudsters have and a reason why so many frauds take so long to uncover. 

“An organisation that says it’s never had a fraud just hasn’t discovered it yet.”

Collusion –where two or more people within a company work together or with external parties to defraud – is a big risk.

”It’s much easier for two people to make something look legitimate and harder to detect,” Gill says.

The problem is exacerbated when fraudsters hold down senior positions because it generally means more opportunity and a greater ability to circumvent controls. Lack of effective whistleblowing policies and procedures makes catching them even harder.

The reporting imperative

“Whistleblowers, particularly in the corporate sector, haven’t been well treated in Australia, which in itself is a real concern,” Gill says. “Yes, people fear for losing their jobs, but if an accountant discovers irregularities they absolutely must be communicated up the management hierarchy.”

This begs the question: what if the perpetrator is the person to whom the accountant directly reports?

“If it is your boss, report it to the head of the audit committee, sometimes the head of human resources, or depending on organisational structure, the CEO or chairman. Whatever the case, make sure you do report it,” Gill emphasises.

As Choudhury notes: “In the fight against corruption, silence must never be the safer option for any individual.”

Heighten cyber risk awareness

Accountants can also help bolster cybersecurity by promoting awareness of money- or information-stealing malware or ransomware threats. More recently, so-called CEO emails have emerged; messages purportedly from the company’s CEO instructing somebody to transfer funds into a non-authorised account.

“It’s important for all accountants to be aware of these types of threats and to grow that awareness throughout their organisation,” Gill maintains.

Read next: Watch out for this scam

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October 2021
October 2021

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