Anti-corruption Day

Fraud risk assessments key

When employees or any other third party commit fraud this could lead to serious consequences.

It's a fact: the costs associated with economic crime pose a serious threat to a company’s reputation and bottom line – and ultimately affects the economy of the whole country.

“Companies need to consider the potential damage to reputation and brand, as well as the real possibility that corrupt activity perpetrated by their employees or by third parties, and joint venture partners, could lead to prosecution,” warns Peter Goss, head of forensic investigations in the government and public services for professional services firm PricewaterhouseCoopers. 

Referring to yesterday being International Anti-corruption Day (with the theme ‘against corruption today’), Goss says: “Although South Africa has well-documented legal and regulatory standards which seen as anti-corruption, the country has faced a significant increase in levels of corruption recently. This is largely due to an array of business scams and collusive tendering.”

International Anti-corruption Day has become a tradition, when 129 countries signed the United Nations Convention Against Corruption (UNCAC) in Mérida, Mexico, after working for several years towards the creation of an international legal document against corruption.  

The most corrupt countries are considered to be in Africa and the least corrupt in Europe, according to the "corruptions perceptions index 2012". PwC’s "global economic crime survey 2011" found that 60% of South African companies were victim of frauds in the last 12 months. Corruption emerged as the third highest contributor to economic crime after bribery.

“The biggest problem with corruption is that it is so opaque. This makes it difficult to detect and investigate. The underlying reason for this frustration is that parties to a fraudulent transaction are effectively both corrupt, particularly in cases of grand corruption,” says Goss.

Grand corruption involves senior people of both private and public entities. It usually takes the shape of influencing tender prices in order to create a slush fund, which is then shared as the spoils of corruption by colluding officials.

Goss points out that official statistics on corruption are extremely difficult to come by because of the complex and collusive nature of corrupt activities.

South Africa has the Prevention and Combating of Corrupt Activities Act of 2004 in place, which creates the offence of "corruption" and various other offences of corrupt activities.

Fortunately South Africa’s legislation makes provision for corrupt activities relating to "procurement" and "tendering", according to Goss.

He suggests that the solution to this difficult and complex problem is to understand and conduct corruption risk assessments and detection reviews in the private and public sectors.

“This will enable an organisation to identify the source of its corrupt threats and develop an appropriate anti-corruption plan," Goss said.

These sources could well be corrupt employees, corrupt senior managers, and even corrupt business trading partners, such as suppliers.

“Particular attention should be paid to the investigation of the track record, experience, qualifications and financial credentials of potential employees and business partners, as well as service providers,” He said.

In this ambit, clients and customers should not be excluded as they could also be part of the problem, he concludes.

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Issue 68