Accountants’ Role in Fighting Corruption
Corruption poses a significant threat to businesses and economies worldwide, costing an estimated USD 3.6 trillion annually. Accountants, as trusted professionals in businesses, play a critical role in leading the fight against corruption. A recent report from IFAC, ICAEW and the Basel Institute on Governance titled Professional Accountants in Business and Anti-Corruption Compliance highlighted that integrating anti-corruption oversight and compliance programs is a crucial component of the governance “G” in ESG. This article explores why it’s essential for businesses to combat corruption, how accountants can contribute, and the red flags and compliance programs to watch for.
“Corruption is typically defined more broadly. The Basel Institute defines corruption as the abuse, for personal gain, of:
• public office;
• power and influence vested in a person as a result of holding a political office;
• holding an influential role in a corporation;
• having personal wealth or access to significant resources; or
• having elevated social standing.
Personal gain is defined broadly, and corruption can manifest in a wide range of behaviours, such as bribery, conflicts of interest, patronage, nepotism, embezzlement, influence peddling or the manipulation of legislative processes with an ulterior corrupt objective.”
Why Should Accountants Care?
Corruption damages businesses on a larger scale than we know. It distorts fair competition, harms society and can lead to severe financial losses, damage to reputation, and legal consequences. As stewards of financial integrity, accountants are uniquely positioned to help businesses prevent and address corruption.
The global accounting profession has over 3.8 million members, and each accountant can help reduce corruption by promoting transparency, ethical behaviour, and accountability within their organisations. This role is crucial not only for safeguarding business but also for supporting the economy and communities.
For the past two years, with South Africa's greylisting, financial regulators have focused on fighting corruption. This led to various amendments to key financial legislation, which provided beneficial ownership reporting, better governance, enforcement and alignment to international good practices. Although legislative changes provide the basis for compliance and enforcement, we must do more to eradicate corruption. Accountants are positioned at the heart of finances and have a unique opportunity to shape their organisations' approach to combating corruption.
Ways to Prevent Corrupt Activities
Here are some basic ways we, as accountants, can contribute:
1. Setting the Ethical Tone
Accountants, especially in senior finance roles, have the responsibility to promote an ethical culture from the top. Leading by example and embedding ethically solid values into the organisation's processes are crucial to fighting corruption.
2. Identifying Corruption Risk
By conducting thorough risk assessments, accountants can help identify areas most vulnerable to corrupt practices. This allows businesses to implement specific measures that mitigate those risks.
3. Building Strong Compliance Programs
Accountants are often at the heart of creating and managing anti-corruption compliance programs. These programs include setting up policies and internal controls that prevent bribery, fraud, and other corrupt activities. They ensure that all departments follow legal and ethical guidelines.
4. Employee Training
Continuous education is key to preventing corruption. Accountants can help design training programs that educate employees about anti-corruption policies and how to report unethical behaviour.
5. Monitoring and Reporting
Transparent and accurate reporting of anti-corruption efforts builds trust within and with external stakeholders. Accountants ensure that all relevant data is captured and reported consistently, making it easier to detect and address corruption early.
Red Flags to Detect Corrupt Activities
Spotting suspected corrupt activities early is critical to preventing them from spreading within an organisation. As an accountant, you should be aware of several red flags that may signal corrupt activities:
Payments made may not be for valid expenses
Unusual or fictitious expense claims could indicate an employee colluding with a supplier to embezzle company funds. These may be picked up as duplicated orders or unbudgeted/unapproved expenses.
Undocumented or suspicious travel expenses: Employees may submit false claims for travel that never occurred, using these as a cover for fraud. For example, travel claims without copies of boarding passes and other proof of travel should be flagged for further scrutiny.
Personal relationships with suppliers, selecting suppliers based on personal connections or receiving kickbacks or bribes.
Unqualified or low-quality service providers which are consistently used, although poor performance could indicate favouritism, bribery, or kickbacks.
Assets misappropriated, lost or used for private purposes
Unexplained use of company property for personal gain, where employees use company vehicles, equipment, or other assets for personal purposes without proper authorisation. This can commonly occur when many employees have access to company assets, making it easier to misuse these for personal projects or side businesses.
Unusual or unexplained inventory shortages, frequent discrepancies between actual inventory and recorded levels, indicating theft or unauthorised use.
Unauthorised Removal of Assets from storeroom or site to unknown locations without proper documentation. Without strong security or asset-tracking controls, employees may remove items unnoticed for personal use.
Unrecorded Sales or "Off-the-Books" Transactions
Receipts that occur but are never recorded in the company's books or systems, such as services provided without issuing receipts or sales made without invoices. Employees might conduct "off-the-books" sales to pocket cash directly, bypassing the company's accounting records.
Inflated Sales Figures
Sudden spikes in revenue without corresponding changes in purchases and inventory, or inconsistent sales figures that don't match inventory or cash flow records. Sales records may be manipulated to meet targets, qualify for bonuses, or create a false appearance of company growth.
By staying alert to these red flags, accountants can swiftly address potential corruption before it escalates. Once the transactions are flagged, it is crucial to take appropriate action and determine their true nature.
Establishing an Effective Anti-Corruption Compliance Program
A well-designed anti-corruption program is essential to safeguarding the business from financial and reputational damage. Here are the key elements that accountants should focus on:
Senior management's commitment to fighting corruption is vital, and there must be clear communication and commitment. This sets the tone for the entire organisation.
Comprehensive risk assessments should be in place to regularly assess the corruption risks, particularly when dealing with third-party suppliers or operating in high-risk regions.
Clear anti-corruption policies and procedures should be in place, including codes of conduct, anti-bribery guidelines, and whistleblower protections. Enforcing stringent approval processes and better security measures to monitor asset movement.
Ongoing training for all staff members should ensure they fully understand their role in the company’s anti-corruption efforts.
Confidential reporting practices provide safe, confidential channels for employees to report any suspicious behaviour and ensure protection from retaliation.
By incorporating these elements, accountants can help establish a strong foundation for preventing and addressing corruption.
External Assurance: Enhancing Credibility
Obtaining external assurance on anti-corruption measures adds credibility to the business’s efforts. Currently, only 29% of companies obtain external assurance on their anti-corruption programs, but this number is expected to grow. Accountants can push for greater assurance to build trust with investors, regulators, and stakeholders, further demonstrating the company's commitment to ethical practices.
Assist your clients better in compiling financial statements with CIBA’s Compilation of Annual Financial Statements 2024 CPD course
By attending this webinar you will gain the following competencies:
The key requirements of the Companies Act related to the compilation of Annual Financial Statements.
How to accurately calculate the Public Interest (PI) Score and understand its implications for financial reporting.
The application and importance of relevant Accounting Frameworks in the preparation of financial statements.
Best practices for ensuring compliance with statutory requirements and accounting standards.
The impact of the PI Score on audit requirements and other compliance obligations.
How to effectively apply accounting frameworks to different types of entities, considering size, structure, and industry.
The significance of aligning financial statement preparation with both legal and ethical standards.
