Recognising the threat that bribery and corruption pose to a financial system already under stress, an overwhelming 86% of South African executives agree that the effective prosecution of individuals would help deter fraud. However, 40% of these respondents admit that they could justify unethical behaviour to meet targets, according to EY’s 2016 Global Fraud Survey.

With this level of justification, executives responsible for ethics and compliance faced a significant challenge if they were to keep their organisations clear of the scrutiny of prosecutors, said the financial services firm on Tuesday.

Conducted between October 2015 and January 2016, the survey of nearly 3 000 senior business leaders from 62 countries and territories also identified a perception in emerging markets that individuals responsible for corruption were not being held to account, with 70% of respondents in Brazil and 56% in Africa and Eastern Europe believing that, while governments were willing to prosecute, they were not effective in securing convictions. In Nigeria, specifically, the percentage stood at 62%, while South Africa and Kenya stood at 42% and 64% respectively.

“Increased levels of global cooperation between law enforcement agencies are making it harder for fraudsters and bribe-payers to evade prosecution. However, with respondents indicating that such misconduct is showing no sign of abating, companies continue to be exposed to major risks driven by the illegal actions of a small minority of employees,” said EY global leader of Fraud Investigation & Dispute Services (Fids) David Stulb.

He added that better use of technology was part of the answer and that more could be done to leverage forensic data analytics to manage these risks and improve compliance and investigative outcomes.

MITIGATING RISK
Recognising that expanding into new markets held new and unfamiliar risks, EY’s research showed that companies were frequently failing to take appropriate steps to reduce their risk exposure, with one in five respondents not identifying third parties as part of their anticorruption due diligence.

Further, one in three companies did not assess country or country-specific corruption risks before making investments, while only half the respondents made use of forensic data analytics to identify and mitigate risks.

With this in mind, EY Africa Fids director Sharon van Rooyen highlighted innovation as crucial to dealing with emerging risks. “[C]ompanies should also consider performing an ethics and culture risk assessment to bring these ethical issues into view and also extend this assessment to educate both employees and suppliers.

“Further, what we are clearly seeing is that some employees, with widely varying motivations, are prepared to misappropriate – or enable others outside the firm to have access to – the confidential data of their companies. The balance between data privacy laws and security creates further complications in this regard,” she said.

Van Rooyen added that organisations needed to conduct tailored threat assessments aligned with protecting their most valuable data, as well as establish mitigation measures around vulnerabilities for access to that data.

THIRD-PARTY TRANSPARENCY
Meanwhile, the fraud survey showed overwhelming corporate support for enhanced beneficial ownership transparency, with 97% of executives in Africa, and 91% globally, recognising the importance of establishing the ultimate beneficial ownership of third-party entities.
 
“With the continuing anticorruption enforcement focus on third-party conduct, and the recent revelations on the possible misuse of offshore financial structures, business leaders are right to be focused on securing a deeper understanding of their clients, partners and suppliers. Enhanced transparency is clearly a focus of broad public interest,” said Stulb.

Increased transparency was, however, only one facet of the solution to a problem that showed no sign of abating. In total, 39% of respondents believed that bribery and corrupt practices were widespread in their country – a view consistent with EY’s fraud surveys conducted in 2014 and 2012. Further, 81% of respondents in Africa said bribery and corruption was an ongoing challenge in their country, with 60% of respondents in South Africa saying that they have had concerns about ethical conduct at work.