Fraud, bribery, corruption, money laundering and other types of criminal behaviour remain endemic in the business world. This is despite concerted efforts by law makers, rule makers, enforcement agencies and company executives themselves to clamp down on illegal and improper conduct carried out within, and against, corporations.
According to EY’s 15th Global Fraud Survey of 2,550 executives in 55 countries, 11% of respondents had experienced a significant fraud in the last two years; and 33% said that bribery and corruption had occurred widely in business in their country. The consequences for companies of failing to prevent such crimes – or to comply with the laws, regulations, industry standards and internal policies designed to deal with them – are serious. Aside from any direct financial loss, there is the risk of legal action leading to criminal prosecutions and large fines, regulatory sanctions, reputational damage and loss of customer trust. This in turn is likely to result in lower profits and reduced shareholder value.
Clearly companies have to do more to combat illicit activity. But where to begin? The starting point must be to build a strong sense of corporate integrity. A company that adheres to sound principles of morality, ethics and honesty will be better placed to combat illegal and irregular conduct. It will also improve its business performance; integrity is not only about stopping what is bad for the company, it is also about promoting what is good.
Accountability is another key imperative. It should be clear which people in which departments have responsibility for fraud prevention and compliance. The assurance functions – legal, compliance, finance internal audit and so on – frequently remain in silos and rarely, if ever, cross divides to discuss their respective roles or share insights. The IT department is often left out of discussions – a serious failing when most frauds and compliance breaches are carried out by people manipulating or overriding systems.
The corporate integrity agenda should contain four elements: good governance, with leaders setting the right example from the top and everyone knowing who is accountable for what; a culture focused on honesty; effective controls for managing fraud and compliance risk, enabled by the latest technology; and data insight, using predictive analytics, artificial intelligence and other innovative digital methods. Only by following a sound integrity agenda will companies bridge the gap between corporate intentions and actual behaviour.
This FT Briefing will look at the fraud and compliance risks facing companies today. It will bring together general counsel, chief compliance officers, chief operating officers, chief risk officers, chief data officers and others from various industry sectors to discuss how best to manage these risks by enhancing corporate integrity.