29 May 2012

The Ernst and Young 12th Global Fraud Survey released last week reflects trends in other recent surveys that corruption worldwide is worsening. Despite countries seeking to strengthen their enforcement regimes and their anti-corruption legislation, findings have deteriorated compared with those from previous surveys.

The survey indicates just how different the business community is in many jurisdictions compared with New Zealand.

The global average is that 39% of respondents report that corrupt practices occur frequently in their countries. In rapid-growth markets, corruption is common place, with 84% of Brazilians say it is widespread. In 2011, of 36 enforcement actions under the US Foreign Corrupt Practices Act, 31 related to activities in Asia, Eastern Europe and Latin America. Many of these prosecutions related to payments to people working in state owned enterprises.

Ernst and Young found that hard times strain ethical standards, with survey respondents saying that they are willing to make illicit payments (15% cf 9% in the previous survey) and misstate financial performance (5% cf 3%) to survive the economic downturn.

While 81% of respondents say codes of conduct are in place and senior managers strongly promote their commitment to them, there is seldom consistent training, only a minority of managers model expected standards, and there is little enthusiasm for enforcing breaches.

The failure to prevent bribery and corruption reflects a mixed commitment to giving effect to the “6 trust elements”, which the OECD has identified as collectively essential if corruption is to be moderated.

These require; setting standards; promoting those standards; integrating those standards into work practices; the modelling of standards by managers, employees knowing the consequences of breaching the standards; and acting decisively when breaches occur.