Fraud flourishes

 2 April 2012
 
 
Fraud in Britain, this year, will cost more than £73 billion – that is £1,500 for everybody of working age.
 
The National Fraud Authority’s annual fraud indicator released last week is substantially more pessimistic than in previous years. The NFA calculates that increasingly effective technology will reduce tax revenue lost to fraud but in all other sectors losses are worsening.
 
The private sector will lose £45.5 billion – with shops, manufacturing and financial services being badly hit – followed by insurance and mortgage fraud.  Perhaps not unsurprising as the Financial Services Authority has identified that senior managers’  are incompetent in corruption matters and that only 2 of 15 banks visited have carried out an anti-corruption audit – according to the  Guardian.
 
Individuals will lose more than £6 billion – much resulting from identity fraud, “Nigeria-like” scammers and bogus tickets for sporting events. And of course the ATM fraud involving more than $1 million skimmed from the accounts of Aucklanders is a local example.
 
Of more than £20 billion lost in the public sector, the taxman will be defrauded of £14 billion, but major losses will come from procurement fraud in central and local government.
 
The National Crime Agency hopes promotion of these figures will change public perceptions that fraud is largely victimless. It has a strategy called Fighting Fraud Together involving nearly 40 enforcement agencies.
 
The report highlights the extent of “insider-enabled” fraud. Although lower than the international figure where 60% of identified fraud is committed by insiders, in Britain a third of respondents to a KPMG survey indicated that their largest fraud was committed by an employee. “Dishonest action by staff to obtain a benefit by theft or deception” is distressingly common.
 
The report restates the increasingly recognised characteristic of organisations, that fraud is under-reported. There is a reluctance to accept that employees breach the trust put in them. More than 25% of organisations treat employee fraud in an informal way either doing nothing, moving the offender to a different job, or just issuing a warning.
 
The US Justice Department disclosed last week that it is prosecuting four Navy procurement officials and three defence contractors for a scheme rewarding the officials with more than $1 million for approving the payment of invoices that had been padded by more than $5 million. In true Al Capone style the charges are not only fraud-related but include tax offences of failing to report the value of benefits! The prosecution resulted from information provided to the agency hotline.
 
 
The Auditor General’s report in 2011 on the “Cleanest public service in the World” disclosed a high percentage of insider-enabled fraud in New Zealand agencies. Although the scale is more moderate than international averages, about 80% of uncovered fraud in agencies was the work of an insider.
 
Explicit guidance from the OAG is that agencies are to report suspected fraud to the appropriate law enforcement agency to decide whether criminal proceedings should be instituted. “It is for the law enforcement agencies, not public entity managers, to decide whether or not a person should be prosecuted.”
 

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April 2, 2012

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Sometimes it is no better to give than to receive

30 March 2012
 
The State Integrity Investigation website was launched in the United States earlier this year.  NGO support comes from a coalition of the Center for Public Integrity, Global Integrity and Public Radio International. The strap line is “Keeping Government Honest”. The primary content is the outcome of an ethics template put over all US state administrations, measuring each against criteria grouped in 14 categories.
 
New Jersey, notorious for organised crime in the past – and setting for the Sopranos – surprised many by topping the scoring with a “B” at 87%.  Of eight “F” rated states, Georgia scored worst with 49%.
 
Illinois scored well with a high C, at 74%. As Chicago has long been recognised as the most corrupt city in the country this state rating is equally surprising.
 
It was only last week that Blagojevich, the former Illinois governor began a 14 year prison term following his conviction relating to “selling” the Senate seat vacated when Obama was elected President.
 
The state is implementing a range of measures to reverse its reputation. A campaign against conflicts of interest is being led by the Chicago Mayor (when Obama’s chief of staff, he shaped the President’s commitment to government transparency). He is requiring a renewed focus on ethics training after an incident involving a senior manager in the schools’ administration accepting perks, and reports that hundreds of lower level employees were regularly given $25 vouchers by contract providers. As the disclosure policy specified a value of $50 before gifts needed to be registered, none ever was.
 
But the mayor has changed the emphasis. In addition to the trouble the employees are in, the Mayor is targeting those that provided the improper gifts; they involved public employees in breaching their duties. This is a new twist, tackling the suborning intention behind behaviour that puts others in a conflict of interest.
 
What may be common practice in relationship building in the private sector should be unacceptable in government. Benefits provided in this way have the effect of making the officials receptive to marketing approaches. This may be seen to conflict with the obligation to work in a fair, responsible and trustworthy way.
 
This pure line finds expression in the New Zealand Auditor General’s guidance that agency staff may only accept “…infrequent and inexpensive gifts that are openly distributed by suppliers and clients (for example, pens, badges, and calendars)”.
 
 
Disclosure: Yesterday, with a number of colleagues I attended a seminar put on by a prominent law firm followed by “refreshments”.
 
 
 
 
 

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March 30, 2012

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Can political funding be free from influence?

29 March 2012

Politics is an expensive business. Elections must be paid for. Government is not a charity. Donors inevitably expect something in return. Questions will always surround the bargain between politicians and their financial backers. Campaign funding is the Achilles heel of democracies.
 
An example is the cost of elections in the United States (said to exceed $1m for a Senate seat). It would be naïve to believe candidates raise that sort of money without “strings attached”. Throughout the western world there are organisations endeavouring to minimise the corrupting influence of these strings. The Sunlight Foundation, committed to transparency and accountability in government, has a growing profile in raising public awareness of influences on decision-makers.
 
A current campaign is the DISCLOSE Bill – Democracy Is Strengthened by Casting Light On Spending in Elections Act – which will have a Senate Hearing today. The purpose is to overturn the effect of the Supreme Court decision in the Citizens United case which resulted in Super PACs. This would impose openness on any group spending money on elections, enabling … “citizens to determine the credibility of campaign ads based on the messenger as well as the message…”
 
In the United Kingdom there is public disquiet following the disclosure that donors willing to give $500,000 to the Conservative Party were offered access to the Prime Minister and Chancellor. Transparency International considers that … “this shocking revelation underscores the need for urgent reforms to clean up political party funding in the UK. Access to the government should not be for sale to the highest bidder. The imposition of a ceiling on political party donations of, say, £10,000 would prevent such scandals from recurring with alarming frequency.”
 
“Parliament also needs to act with urgency to enact legislation for a mandatory register of all lobbying activity so that the UK public knows who is lobbying whom for what, and how much they are paying for it. Without these urgent reforms, public trust in politicians will be further eroded.”
 
In Canada, Democracy Watch is strident in advocating proper enforcement of integrity laws and is campaigning as part of the Money in Politics Coalition to create a publicly funded election system to reverse the corruption perceived to flow from existing arrangements.
 
 
In the New Zealand Parliament yesterday, a question was put to a Minister about receiving improper benefits from a major business that is seeking advantageous legislation. However, when in power MPs now in Opposition did no more than the current Government to enact controls on lobbying, and opposed repeated attempts in a Private Member’s Bill to regulate MPs’ behaviour through a code of conduct.
 
The OECD Principles of Transparency and Integrity in Lobbying is a code that all Member states are expected to implement as a constraint on improper influences on governments. Perhaps those who fund elections don’t consider it improper to acquire the opportunity to shape decision-making.
 
 
 
 
 
 
 
 

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March 29, 2012

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A tale of China, New Zealand and Finland

28 March 2012

 “Corruption is the most important threat facing the ruling party.”

That statement could be the situation in New Zealand after recent events involving a Ministerial resignation and the disclosure of contacts made by party members seeking to benefit from their connections with the Government.

A very readable analysis of these matters under the title of “the banality of corruption” was the post in today’s Political Scientist blog. It identifies the link between cronyism and corruption and the “temptation to use power to advance self-interest”.

The statement (of course in Chinese!) was made by China’s Premier Wen Jiabao and published late Monday on the website of the State Council, China’s Cabinet. The Premier has made several similar comments this month about corruption being the biggest threat facing the ruling Communist Party, and warning of a change in the “nature of power” if it is not curbed.

He observed that “if the matter is not handled properly, the nature of power may change. This is a very grave challenge we are facing.”

That may just as easily be the feeling of New Zealand’s Prime Minister at present.

Was the Leader of the House trying to draw attention away from this situation when he baited the Opposition with references to Finland?

www.mysinchew.com/node/71806

 www.thepoliticalscientist.org/?p=744

 

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March 28, 2012

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Ireland was a mangy moggie not a celtic tiger

27 March 2012
From 2005 and for the the next 12 years, New Zealand media repeatedly referred enviously to the celtic tiger – to the rampant Irish economy and the need for a Kiwi emulation.
But Ireland’s boom came unstuck in 2008. It fell apart with the onset of the global financial crisis. Ireland is now grouped alongside the clapped out economies of Portugal, Greece and Spain. Its GDP declined 11% over two years; unemployment rose to 17%.
Misplaced Government optimism increased public spending by 43% over three years. Rash activities by banks and developers caused a property boom – and bust – that ultimately disadvantaged many. A subsequent self examination by Irish institutions disclosed unethical conduct on a wide scale. Senior politicians seemed as bad as any.
Last week the findings of a 15 year investigation into the administration of Prime Minister Bertie Ahern were published. Described as a “3,200 page fact finding study” a conclusion is that corruption was “…endemic and systemic at every level of government in Ireland in the late 1990s when Ahern was Prime Minister”. The judges conducting the enquiry were unwilling to find that Ahern was corrupt. Although they identified numerous payments to the Prime Minister they fell short of describing the events as corruption.
The Environment Minister at the time and subsequently a EU commissioner, was found to have accepted bribes. He bought a farm with the payments. The judges found his explanations “astounding, incredible and untrue”.
This revised description of the celtic tiger brings into question the accuracy of surveys like the Transparency International corruption perceptions Index.
In 1998 Ireland was placed 14th on the CPI (when New Zealand was 4th). it slipped to 19th place in 2000, (NZ 3rd), was 19th again in 2005 (NZ 2nd), and in 2011 was 19th still (NZ 1st). Perhaps it is just that most other countries are so much worse.
An unsurprising finding in 2011 was that the Irish had the lowest levels of trust in their government of the 23 EU countries surveyed that year. The Edelman trust barometer showed that only 20% had trust in the system of government, down 11% from the previous year. (There has been a substantial bounce back in the 2012 Eurobarometer.)

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March 27, 2012

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Must government contractors demonstrate public sector ethics?

2 March 2012
The starting point for this post is that campaigning journalism is often part of political axe-grinding. Sympathetic media can promote that campaigning. A report in yesterday’s Independent is an illustration. The paper highlighted recent research by the Ethical Consumer. Ethical Consumer has investigated governance arrangements among the top 20 companies that have contracts with the British Government. Many are rated poorly. The conclusion is that … “companies lining up to take a slice of the mushrooming multi-billion pound public service sector are among the most unethical in the UK … and … have the bottom rating for … ethical and environmental criteria, including environmental reporting, supply chain management, human and workers’ rights and political activity.”
A description once used by the Guardian is that “Ethical Consumer approaches ethical issues with a mind-boggling thoroughness and integrity that makes everyone else look like a charlatan.”
An implication from a New Zealand perspective is that the Ethical Consumer identifies 4GS and Serco as being “of particular concern”. Both operate in New Zealand.
Serco is placed 19th out of the 20 companies assessed, with a bottom rating in nine of 17 survey characteristics. Its “ethicscore” is 4.5 (from 20). In sixteenth place, 4GS has an ethicscore of 5.
An aspect of the survey picked up by the Independent was the number of companies with contracts for public services that had arrangements to minimise their tax liability. It found that 13 of the 20 companies surveyed had subsidiaries in countries that are widely considered to be tax havens ….. This implies that the companies concerned,… are managing their other finances in such a way that they may be actively avoiding paying tax here in the UK…” Serco has interests in Luxembourg, Singapore and Ireland. 4GS is more widely spread in numerous tax havens, including Panama, Macau, and the Virgin Islands.
That assessment perhaps should not be a New Zealand concern. Shaxson’s “Treasure Islands and the men who stole the World” classifies New Zealand as a tax haven that “lets down the developed world”.
Although some of Britain’s Opposition MPs are becoming vocal about taxpayer funded contracts being awarded to companies that manage their affairs to minimise UK tax liability, professional services businesses often facilitate that outcome. The IOS reports that KPMG (itself a major contractor to government, with 2010 turnover exceeding $21 billion) uses 47 out of the 60 globally recognised tax havens. “On its UK website the company openly states that it’s able to substantially reduce companies’ tax bills through a series of nifty financial manoeuvrings.”
Which raises the question of whether companies contracted to deliver public services should adopt a public service ethic when delivering those services?  When undertaking government functions, should contractors demonstrate the spirit of service required of officials and the ethical governance required of agencies?

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March 26, 2012

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Integrity is all about managing conflicts of interest

23 March 2012
Good government is a reflection of public trust that Ministers and their officials are committed to the rule of law, the democratic process and the spirit of service. Transparent and integrity rich processes are implicit in the spirit of service. Without open and ethical management of conflicting interests, trust is destroyed. Codes of conduct are essentially a structure for managing conflicts, for ensuring that public responsibilities are not prejudiced by the pursuit of personal interest. That rationale underpins the Standards of Integrity and Conduct for the State Services. It underpins the directions in the Cabinet Manual on how Ministers must respond when potential conflicts arise.
Failure to manage conflicts of interest is behind all cases where Ministers have their warrants taken from them. They have put personal interest or what can reasonably be seen as a personal interest ahead of official responsibilities. Conflicts come in many forms. They range from deceit for personal or professional advantage, to using powers, connections and information in improper and unlawful ways.
The Cabinet Manual has repeated references to conflicts of interest. Chapter 2 provides emphatic guidance that
“Ministers are responsible for ensuring that no conflict exists or appears to exist between their personal interests and their public duty. Ministers must conduct themselves at all times in the knowledge that their role is a public one; appearances and propriety can be as important as an actual conflict of interest. Ministers should avoid situations in which they or those close to them gain remuneration or other advantage from information acquired only by reason of their office.”

The Standards of Integrity and Conduct provide equivalent guidance for State servants;

“We must avoid circumstances where our personal interests or relationships conflict with the interests of our organisation. We must also avoid situations where there could be an appearance of such conflict. Our actions need to be fair and unbiased and should always be able to bear close public scrutiny. An important part of strengthening trustworthiness is our commitment to transparency. Openness allows organisations to ensure that conflicts are avoided or managed. By being open with our organisation and disclosing non-work commitments, we enhance our trustworthiness.”
Providing training to agency staff to ensure they understand obligations to manage conflicts and to maintain standards integrity is a statutory responsibility of all chief executives.
The Secretary of the Cabinet is available to assist Ministers in their understanding of the Cabinet Manual.
In response to a Parliamentary Question in 2010 the Deputy Prime Minister told the House on behalf of the Prime Minister: “The Prime Minister is satisfied that Ministers are aware of the guidance in the Cabinet Manual about conflicts of interest and he would expect them to declare an interest in an issue where a conflict actually exists….”
There is an interesting juxtaposition between that statement and yesterday’s resignation of a Minister.

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March 23, 2012

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Unacceptability of gifts – is it the principle or the value?

22 March 2012

Accepting a gift is always an ethical challenge for an official.

Is the gift given as a common courtesy? Is the gift related to the performance of a function? Does it relate to something done “after hours” but reflecting work responsibilities? Is it given to mark the completion of an offical activity?

Unless a gift is of nominal value and given either as a common courtesy or because the official was an unidentifiable member of a large gathering it should not be accepted without careful consideration of the ethics involved.

The ethical principle is that officials should not accept any benefit without the consent of their employing agency. Anything provided by the employer is acceptable. Any other benefit, in cash or kind, must have the informed approval of the employer. This principle covers secondary employment as much as it covers gifts, hospitality and educational opportunities – regardless of how directly related they may be to official responsibilities.

Many OECD countries have a prohibition on officials accepting benefits of any sort. Others condition the prohibition with a proviso that the gift could not be seen to influence the performance of duties. That is the approach in the relevant integrity standard ofn the State Services code of conduct. That requires that “We must decline gifts or benefits that place us under any obligation or perceived influence”.

The Auditor General adopts a purist line in the Sensitive Expenditure guidelines:

8.26  We expect entities to –

  • require receipt of gifts, except for inexpensive gifts that are openly distributed by suppliers and clients, to be disclosed, to be recorded in a gifts register, and to remain the property of the entity;
  • allow staff to personally acquire only infrequent and inexpensive gifts that are openly distributed by suppliers and clients (for example, pens, badges, and calendars); “

State servants of all levels of seniority seem to have a blind eye when it comes to bottles of wine. Officials invited to speak at gatherings in their official role ( otherwise they would often be inappropriately using official information ) or speaking in official time ( otherwise inappropriately using official resources) seem habitually adapted to receiving bottles of wine when proffered in acknowledgement of their contribution. The contribution of course is made by their organisation, although a record of the the gifted wine seldom makes its way to a gift register and even less seldom into the organisation’s cellar for use at the discretion of managers.

A media report this week is of gifting alcohol to Chinese officials. Moutai, the “Chinese national drink” costing about $500 a bottle is commonly used to bribe officials. Apparently there is a Chinese saying – “Those that buy Moutai don’t drink it; those that drink Moutai don’t buy it.’”

(Disclosure: I did not accept a bottle of wine offered in recognition of a speaking engagement yesterday.)

http://www.ssc.govt.nz/node/1914

http://www.oag.govt.nz/2007/sensitive-expenditure/part8.htm

http://www.fcpablog.com/blog/2012/3/20/chinas-official-liquor-is-bribe-of-choice.html

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March 22, 2012

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Does the Trans Pacific Partnership explain NZ’s silence on the Open Government Declaration?

21 March 2012
 
The Open Government Partnership with more than 50 countries adopting the principles set out in the 2011 Open Government Declaration seems to be gaining momentum. There is regular activity on the OGP website with several daily posts of international events related to country commitments. Recent Updates focus on the conference next month when the foundation eight member states will be formally joined by 42 countries making their commitments to the Declaration.
 
Australia and New Zealand both remain aloof from the OGP. In what continues to be a surprising silence in both countries, no official statements have been made about the international Open Government movement although Ministers in both Australia and New Zealand speak enthusiastically about the value of open and accessible government.
 
An explanation may be reflected in a post on Open and Shut, and Australian blog about the freedom of information. The 15 March post was about the Trans Pacific Partnership and the unprecedented levels of secrecy which surround United States – Australia negotiations and indeed all parties’ negotiations. An American official is quoted as saying it is the least transparent trade negotiation he has ever seen. The blog reports that attempts to get information about any tentative agreements are unsuccessful. A concern is the confidentiality agreement, about which New Zealand is reported to be “the organiser in chief” which will preclude disclosures for the first four years of the agreement. The agreement included on that site is as follows:
 
  • “First, all participants agree that the negotiating texts, proposals of each Government, accompanying explanatory material, emails related to the substance of the negotiations, and other information exchanged in the context of the negotiations, is provided and will be held in confidence, unless each participant involved in a communication subsequently agrees to its release. This means that the documents may be provided only to (1) government officials or (2) persons outside government who participate in that government’s domestic consultation process and who have a need to review or be advised of the information in these documents. Anyone given access to the documents will be alerted that they cannot share the documents with people not authorized to see them. All participants plan to hold these documents in confidence for four years after entry into force of the Trans Pacific Partnership Agreement, or if no agreement enters into force, for four years after the last round of negotiations.
  • “Second, while the negotiating documents are confidential, each participant may mail, e-mail, fax, or discuss these documents over unsecured lines with the groups of people mentioned above (i.e., government officials and persons who participate in the domestic consultation process). The participants may also store these documents in a locked file cabinet or within a secured building; that is, the documents do not need to be stored in safes. Each participant can also create and store these documents on unclassified computer systems.
  • ‘Lastly, the participants will mark the documents they create in a manner that makes clear that the documents will be held in confidence.The policy underlying this approach is to maintain the confidentiality of documents, while at the same time allowing the participants to develop their negotiating positions and communicate internally and with each other. We look forward to your confirmation that you agree with this approach.”
The Official Information Act would appear to exclude the material referred to in this confidentiality agreement. Section 6(e)(vi) expressly protects the premature disclosure of information relating to entering into overseas trade agreements.
 
As both Australia and New Zealand seem to be enthusiastically courting the US with the aspiration of bedding down the Trans Pacific Partnership, assuming some sort of cooperative silence about the OGP may not be far off the mark. But how does that then square with the US being one of the eight originating OGP member states, and providing strong encouragement to others to make the commitment?
 
 
 
 
 

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March 21, 2012

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OECD to ratchet up governance in anti bribery fight

20 March 2012

 
Corruption Currents, a daily blog published by the the Wall Street Journal features an undiminishing column of major corruption incidents around the world. Expanding enforcement capacity in most jurisdictions doesn’t seem to be matching the challenges!
 
A comment by the OECD Secretary General to the 10th conference of the International Bar Association’s Anti Bribery Committee last week lends weight to this prospect. The OECD which championed the Convention against the Bribery of Foreign Officials, has successively set up additional resources as, hydra-like, other modes of criminality emerge. It is now committed to the Tax and Crime Oslo Dialogue, the Financial Action Taskforce and the Global Forum on Transparency and Exchange of information.
 
The OECD coordinates tools, techniques and best practices for its 39 Member states and sets implementation obligations that are periodically evaluated. Russia, which signed up in February, is the latest Member to accede to the Anti Bribery Convention. But corruption schemes are increasingly more complex.  The response needs to be beefed up.
 
A criticism is the reluctance of more than half of the coonvention member states to initiate prosecutions where circumstances indicate that there has been suborning of foreign officials. ( An intereting debate at the IBA conference was about the status of a Finnish postal worker.  Under the Anti Bribery Convention, employees in a fully commercial state organisation are not regarded as officials.  Finland’s postal service is a commercial business, but in the far north its services are highly uncompetitive and comprise a social service. Would  making a payment to such a postman be proscribed under the Convention?)
 
In his address to the IBA, the Secretary General referred to a new global economic governance architecture for fighting corruption. He referred to the IBA as a partner in the struggle to strengthen the rule of law. He said that the Working Group on bribery “is soon expected to be elevated within the OECD structure”. This has not been forecast on the Anti Bribery Convention website.
 
 
 

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March 20, 2012

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