True or false: It's OK to make cash payments to customers to retain their business.
Given that the answer is a no-brainer, it's dumbfounding that 15 percent of senior executives at global companies responded to the question by saying "true."
This data point marks one of the most alarming findings in Ernst & Young's 2012 Global Fraud Survey, research based on fraud, bribery and corruption insights and opinions gathered from more than 1,700 executives, including CFOs and heads of legal, compliance, and internal audit, in 43 countries.
In E&Y's 2010 Global Fraud Survey (the report is biennial), 9 percent of respondents indicated it was acceptable to bribe customers. "Considering the growing pressure companies face in today's global economy," notes Brian Loughman, Americas Leader of Ernst & Young LLP's fraud investigation & dispute services (FIDS) practice, "this statistic is particularly troubling because it demonstrates challenges companies have at many levels in an organization."
This theme -- how growing pressure to meet revenue targets is undermining commitment to legal and regulatory compliance -- crops up in several sections of the report. On a related note, it appears that this pressure could be better managed by strengthening the information (namely, risk information) that the board receives: roughly half of U.S-based C-suite survey respondents indicate that their boards need a more detailed understanding of the business if it is to function effectively as a safeguard.
The findings also indicate that while North American organizations lead the pack in implementing anti-bribery and anti-corruption policies, many of their executives lack an understanding of third-party liability risks.
This lack of understanding may in part be a function of increasing regulatory enforcement rigor among a range of regulators.
"For many years, organizations confronted bribery and corruption risk by focusing on their own organization and its interaction with foreign officials," Loughman explains. "Recent developments on these issues demonstrate that regulators and enforcement bodies are more aggressively looking at how third parties act as a proxy for a company to potentially pay bribes and/or make facilitation payments. Many organizations are just beginning to appreciate the significance of this development."
On the good-news front, fraud-detection and fraud-prevention technology is improving quickly. Much as continuous auditing can spot issues before they blossom into major financial reporting problems, so can anti-fraud technology help prevent small lapses from developing into larger forms of bad behavior that result in major enforcement actions.
The use of technology to detect and prevent fraud is rapidly developing and we're seeing many clients increase their effectiveness in identifying problem areas on a proactive basis. The use of forensic data analytics and other technology based tools and methods will continue to play a major role in helping companies with these challenges.