Helping workers understand that corruption is not a victimless crime may make compliance and ethics training more effective
Last week was International Fraud Awareness Week (November 16-22), which reminded companies of how critical it is that they assess their compliance programs to ensure they have the necessary controls in place to prevent or catch corruption, as well as the training they are offering to employees.
Point number six in a fraud prevention checklist provided by the Association of Certified Fraud Examiners (ACFE) suggests that creating a workplace environment that promotes ethical behavior is crucial to preventing major frauds that typically involve senior managers who are able to override process-level controls thanks to their high level of authority. ‘Senior managers may be unable to perpetrate certain fraud schemes if employees decline to aid and abet them in committing a crime,’ ACFE says.
When companies provide compliance and ethics training, they should consider giving employees more insight into the big picture of how corruption hurts economic development. They can take advantage of guidance documents for corporate programs that governments and international policy organizations have been improving. Some of the most effective initiatives have focused on raising awareness, says Michael Fine, a senior member of LRN's ethics & compliance advisory practice. He cites publications by the Organization for Economic Cooperation and Development (OECD), Transparency International and others that ‘quantify conduct so it’s harder for good people to rationalize bribery as a victimless crime and just business as usual.’
In this year’s background brief on its CleanGovBiz Initiative, the OECD explains that corruption needs to be fought because it is one of the main obstacles to sustainable economic, political and social development for developing, emerging and developed economies. The brief discusses how corruption increases transaction costs and the uncertainty of doing business and leads to waste and the inefficient use of resources. It further outlines how corruption excludes poor people from public services, perpetuates poverty, erodes public trust, undermines the rule of law and ultimately delegitimizes the state.
The OECD cites IMF research that shows investment in corrupt countries is almost 5 percent less than in countries that are relatively corruption-free. The organization also quotes the World Economic Forum’s estimate that corruption increases the cost of doing business by up to 10 percent on average.
Fine sees a need for broader attention to leadership, culture and the general business environment created within a company. He points to the newly revised framework for internal controls created by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), which pays more attention to company culture than the original 1992 framework did.
‘There is still a rolling up of sleeves that has to occur so that the culture one desires is actually created,’ says Fine. ‘The danger with all these frameworks, particularly as they’re scaled, is for them to become checkbox [exercises], even when there’s explicit instruction not to do that. An assessment may show that the necessary elements for compliance are there but are not working.’
It is helpful to use frameworks like COSO’s to structure a compliance program, but it’s not a mechanical process, Fine explains. ‘There’s a tendency to automate a process,’ he says. ‘But particularly in the corruption area, after you design a program or set of controls, someone with practical experience has to look at it and make some judgments, and I think that doesn’t happen as often as it should.’
Fine believes the top tier of US companies have made the requisite investments to develop effective anti-corruption programs in recent years. Below this level, however, he sees many firms still learning how to do compliance better that continue to struggle with the resources they need to invest in and often do not invest in the best way. He thinks a lot of work remains to be done, for example, by those responsible for keeping books and records.
For more resources to fight fraud, please visit the Fraud Awareness Week website.