The global accounting firm Deloitte LLP has published its 2011 anti-corruption practices survey.
Deloitte reports that companies have increased their focus on preventing and detecting corrupt activities and their global operations in response to the increase in prosecutions under the US Foreign Corrupt Practices Act (FCPA) and the increased size of penalties. However, only 29% of the 276 executives surveyed by the Deloitte Forensic Centre were very confident that their company’s anti-corruption program would prevent or detect corrupt activities. Deloitte concludes that this low level of confidence indicates that many companies may need to evaluate and upgrade their anti-corruption efforts.
A combination of the increased enforcement of the FCPA, and the increase in the size of penalties over the last few years, together with the coming into force of the new UK Bribery Act 2010 means that organisations all around the world are re-examining their anti-corruption compliance programs. Indeed several we at the Bribery Library have spoken to over the past year have no anti-corruption controls in place at all, which is perhaps surprising when you realise that they are entities with turnovers of $billions.
Some other interesting statistics from the Deloitte report:
- 90% of executives said their company had an anti-corruption policy (one wonders precisely who Deloitte were surveying, because this is not necessarily our experience).
- Only 45% of the companies surveyed had a stand alone anti-corruption policy, while the remaining companies have a policy that was part of a broader code of conduct. Deloitte offer the commentary that in their experience anti-corruption issues may not receive adequate attention unless they are addressed by the policies specifically focussed on corruption, is a view with which we agree.
- Although roughly 80% of executives said their company conducted internal audits of its foreign operations to identify corrupt activity, only 32% said these audits were conducted annually or more often.
Third party risks
- 52% of executives see the activities of third parties as the greatest source of corruption risk.
- 43% of executives considered that identifying and managing third party relationships was a significant challenge, more than for any other issue.
- Despite these concerns, only 41% of executives said their company regularly conducted due diligence on third parties in foreign countries that interact with foreign government officials.
- 9% of executives said that they conducted very detailed monitoring of third parties to ensure that they are complying with the company’s anti-corruption requirements. This statistic certainly is in line with our experience of talking to clients and contacts.
- When conducting anti-corruption internal audits, only 50% of executives said that their company’s audits covered foreign sales agents.
Increased corruption risk in emerging markets
- 55% of executives said their company was extremely concerned about the potential impact on their business of corruption in China.
- 43% had the same view about Russia.
- 39% had the same view about India.
- 26% had the same view about Brazil.
“Tone from the top”
- 80% of executives said that their board of directors received updates on the status of their anti-corruption compliance program, and roughly two thirds said that they received updates annually or more often.
- However 32% of executives from smaller companies (with less than $1 billion in annual revenues) said that their board of directors did not receive any updates on their compliance programs.
Assessing risky activities
- Approximately one third of executives considered that customs clearance and importation of goods, and entertainment or business development expenses related to government business or to government relations, presented a significant corruption risk for their companies.
- 20% or more of executives felt that a number of other activities pose a significant risk including bribes, gifts to foreign government officials, expenses incurred in connection with sponsored travel and lodging for foreign government officials and facilitating payments.
- 63% of executives at larger companies believe that the use of third parties posed a significant risk, compared to 33% of those at smaller companies.
- 35% of executives from larger companies received a significant risk from entertainment or business development expenses related to government business or to government relations, while only 19% of those at smaller companies shared that concern.
- 58% of executives said that their companies relied extensively on internal risk assessments and past experience with corruption issues.
- One third of executives said that their companies relied extensively on industry information or on the ratings of the Transparency International Corruption Perceptions Index.
- In spite of the very significant financial incentives arising out of the Dodd-Frank SEC whistleblower provisions, 37% of smaller companies and 20% of larger companies said that they were not likely to re-evaluate their anti-corruption programs in light of these new rules.
Training and communication
- 73% of executives said that their companies provided anti-corruption training, of whom 64% said that they trained select employees such as those in higher risk positions. However, many executives said that their company cast a much wider net for anti-corruption training.
- Half of the executives said that their company trained all international employees, while 44% said that they trained all domestic employees.
- Roughly one third of executives said that their company also trained members of its board of directors on the company’s anti-corruption policy.
- Only 26% of executives said that their company trainer third parties on anti-corruption requirements which, Deloitte comment, is surprising given the general concern over corrupt activities involving third parties.
Personally, we are surprised at the low level of training revealed by this survey and feel certain that this must increase rapidly and extend to all staff if companies are to meet the UK Bribery Act Guidance published on 30 March 2011.
Deloitte conclude that while training is important in helping all employees understand the legal requirements and company policy on what constitutes corrupt activity and its consequences, it is unlikely to be enough. Anti-corruption training programs should be supplemented by a robust monitoring programme throughout the year, and by an effective approval process for transactions and for the use of third parties.
In conclusion, this survey is a stark reminder that there is a great deal more work to be done by companies all around the world, including those in countries where there is already medium or high levels of enforcement, to deal with the risk of corruption and to meet the expectations of regulators, especially in the US and the UK.