Fraud and corruption risks impact corporate international expansion

October 02, 2019 by Mark Dunn

A focus on profitability and increased revenues is making businesses more liable to fall victim to fraud, bribery and corruption which have become endemic in certain parts of the world.

A report by Ernst and Young, which questioned 3,800 staff in large companies operating in 28 countries globally, found that almost a third believe that senior management has come under increased pressure to expand into riskier markets in the pursuit of ever-greater profits.  Almost two thirds of those who took part in the survey believe that corruption has become widespread within business, while 37 per cent say that firms regularly inflate their revenue and profit figures.

EY's analysis found that strong compliance programmes are vital in both preventing a company falling victim to fraud and for increasing growth in revenues.  It showed that there is a direct relationship between growing revenues and making compliance a central part of doing business.

The report demonstrated that staff within companies which take compliance seriously are more likely to rate their ethical standards highly, keener to ensure that a firm's operations across different markets meet similar ethical standards and are more likely to know what their firm's anti-corruption policy is.

The findings are clear evidence that proper due diligence and compliance around anti-bribery and corruption can have a beneficial effect upon a company's bottom line.  Without them, a firm can be faced with risks to its finances and reputation as well as potentially opening the way for further regulation.

Although awareness of the importance of compliance to combat corruption seems to be high among staff, there does not seem to have been any corresponding emphasis placed upon it by management.  EY found that 57 per cent of respondents said that they had such a policy in place – no change from the figures of a similar survey two years ago.

Meanwhile just four per cent of senior management respondents said they keep their employees regularly updated on the importance of high ethical standards yet less than a third of staff in these organisations agree with them with more than a quarter saying that they have never been informed by their management of these policies or simply do not know.

David Stulb, Global Leader of EY's Fraud Investigation & Dispute Services (FIDS) practice, said "The risks of fraud, bribery and corruption are real. Businesses are facing complex restrictions in the way they conduct business with evolving sanctions regimes and new risks, such as cybercrime, having the potential to significantly disrupt operations. Businesses need to have their eyes wide open in their pursuit of high-risk growth strategies."

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