An article entitled “Confronting Corruption” by Ravi Venkatesan, published by McKinsey Quarterly in 2015, discusses illegal and corrupt business practices. There is an increasing response in the U.S. and developing markets against corporate wrongdoing, including new legislation and government officials boldly taking a public stance against fraud and corruption.
“Governments are strengthening existing legislation such as the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act,” say Natasha Perssico, Forensic Accountant, and James F. Schultz, Principal, at Cendrowski Corporate Advisors LLC.
Smart Business spoke with Perssico and Schultz about anti-bribery and corruption matters covered in that article.
What sorts of actions are considered illegal or corrupt?
Payments for bribes used to secure an improper business advantage in obtaining or retaining business such as payment for regulatory approval of a product, reduction of taxes, or to avoid customs duties, are a few examples.
Speed money, or ‘grease payments’ are payments made to government officials or employees in the private sector to prevent undue delays in conducting business.
Other examples are employees who perpetrate financial reporting fraud to meet financial performance expectations or accept personal rewards such as kickbacks from vendors, advertising agencies, or commissions on real-estate transactions or machinery purchases. Another common practice is accepting deposits in overseas bank accounts upon successful business transactions.
What preliminary steps do you recommend to clients to avoid illegal actions?
Establish strong, unified internal controls over financial reporting and operational policies and procedures on a company-wide basis. Ensure compliance with laws and regulations regarding potential illegal acts for each operation line and geographic segment, regardless of the amount of revenue that is brought in from any segment or region.
What is the best course of action for top management to follow?
Enforce zero tolerance from the top. Too many companies emphasize meeting performance metrics, with insufficient attention to the company’s commitment of meeting goals and objectives within an ethical framework.
Support anti-bribery laws, speak out against corrupt practices in your industry and explicitly acknowledge any loss of business that results due to adherence to ethical principles. Ensure that every employee in every part of the world is utterly clear about what conduct is acceptable and what is not.
What recommendations would you make to avoid employees’ improper acts?
Train employees to be fully informed of unacceptable behaviors. Have a formal code of conduct that is clearly and frequently communicated to employees, customers, vendors and business partners.
Additionally, foreign employees, vendors, and managers need to be trained to be both familiar and compliant with global laws such as the U.S. FCPA.
There should be clear policies, procedures with approval processes, stringent controls and regular internal audits of high-risk areas.
Respond to instances of fraud and corruption quickly and be prepared to investigate the issue immediately. Fair and decisive action should be taken that clearly communicates that fraudulent behavior is unacceptable.
What are the risks of taking a strong stance against corruption?
Be prepared for short-term repercussion.
While an unwavering commitment to ethical business practices is necessary to establish a strong reputation of high ethical standards, refusing to participate in bribery and corruption may result in certain short-term repercussions, including declines in business, missed budgets, increases in the length of time the company has to wait for approvals or other business processes, and possibly, angry responses from officials who are seeking bribes and other facilitation payments. ●
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