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Integrity — in word and deed — is back in business

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Roderick M. Vega

Suits The C-Suite

The concept of integrity — as a distinct corporate value and not mere lip service — has been identified as a vital part of the management agenda for many of the world’s companies. This was one of the key findings in the recently released EY 15th Global Fraud Survey: Integrity in the spotlight. The report offers insights from 2,550 business leaders (from 55 countries, including the Philippines) on the heightened risks and challenges that companies face in addressing fraud and corruption, particularly in this time of technological advancement. It also talks about how some companies are leveraging technology and increased compliance to combat these risks as well as the level of awareness on significant data protection regulations.

THE INTEGRITY AGENDA
One of the most interesting findings of the report is how 97% of respondents recognized that acting with integrity is vital to their business (100% for Philippine respondents), not just in terms of avoiding regulatory scrutiny, but as a significant business advantage. They also ranked the benefits of being perceived as operating with integrity. These benefits include customer perception, public perception, successful business performance, recruitment and people retention as being even more important than compliance.

This is borne out by the research conducted by Ethisphere Institutes, which found that the World’s Most Ethical Companies outperformed the US large-cap sector by over 10% over a five-year period.

Yet interestingly, a significant minority of respondents also admitted that they would be willing to perform unethical acts if the business needed it — 13% said they would justify making cash payments to win a contract (26% for Philippine respondents). One possible reason for this “integrity gap” is that few individuals (only 22%) think that integrity is a personal responsibility. Even more (41%) believe that the company’s integrity is up to management.

This is why there is a need for an Integrity Agenda to close the gap between a company’s integrity intentions and the actual behavior of its people. The Agenda has four foundational elements — culture, governance, controls and data insights, which help measure the effectiveness of integrity programs and values, with the long-term goal of influencing people to understand that integrity is a personal responsibility.

However, we should also recognize that while making integrity a corporate priority is aspirational, the reality is that we still have a long way to go. Fraud, bribery and corruption still persist globally and constitute one of the greatest risks identified by 36% of respondents.

NO DECLINE IN FRAUD AND CORRUPTION
The survey found that while there have been encouraging improvements in certain countries, fraud and corruption levels have not really declined globally in the last two years, with 38% of respondents stating that bribery/corrupt practices still occur widely in business in their country. This is despite the fact that there have been unprecedented levels of fines from governments, with significantly increased penalties being imposed in countries like Brazil, the Netherlands, the UK and Switzerland, among others. Certain governments are seen to be introducing and enforcing more stringent anti-corruption laws.

On the other side of the equation, most companies have also introduced and implemented anti-corruption policies, whistleblowing hotlines and ethical statements/values codes. Yet these practices seem to fall short when it comes to curbing incidences of fraud, bribery, or corruption, with more than one in 10 respondents saying that a major fraud incident has happened in their company in the last two years.

THE DIGITAL REVOLUTION
Part of the challenge lies in the rapid transformation of business models due to digital technology — with corresponding implications for legal, compliance and internal audit functions. The digital change is inevitable, with 91% of respondents expecting that their organizations will be using advanced technology regularly within the next two years. Such conditions will, however, create more complexity for companies, particularly with regard to data privacy legislation and compliance. Increasing technology use also heightens the risk of cyber threats and ransomware, with 37% of respondents seeing these as the greatest risk to their business.

On the positive side, new developments in technology, such as artificial intelligence, machine learning and automation can help streamline legal and compliance functions. Incorporating forensic data analytics (FDA) into a company’s overall digital strategy can enhance risk mitigation and improve business transparency.

When companies create a digital footprint, it alters their traditional risk landscape. Rapid technological adaptation can result in out-of-date risk assessments and outdated policies and controls, creating gaps that rogue employees can use to commit fraud, data theft, or other illicit activities. Heightened compliance is not just necessary but practically mandatory.

Because of this paradigm, FDA offers the dual benefit of increasing transparency and operational efficiency. At the same time, FDA helps address fraud and compliance risks while providing deeper business insights to guide overall strategy.

For example, in one case, EY developed an analytics platform for a client to combine finance data with other business systems to identify transactions and third parties with higher chances of risk or corruption using a risk scoring system. The risk scoring was built into analytics dashboards for sales and payment transactions and were refreshed automatically, helping compliance professionals at the company perform continuous transaction monitoring to better detect and deter fraud.

With the right investment in technology and sufficient leadership support, companies now have more tools at their disposal to truly put integrity back into their business, especially in our Philippine business environment. Should more organizations take this step, we can perhaps hope that future surveys can chart a greatly reduced incidence of fraud, bribery and corruption globally.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

 

Roderick M. Vega is a partner and the Fraud Investigation and Dispute Services Leader of SGV & Co.