It’s official: CFOs are the Gateway to Fraud
Grete Chan, 8 May 2013
Ernst & Young recently released the results for the 12th Global Fraud Survey which uncovered unsettling information on our troubled economy and attitudes towards fraud. Chief Financial Officers (CFOs) are arguably one of the most influential figures within an organization that serves as the crucial link between the business and the board due to the information they provide that serves as the basis of many business decisions. Furthermore, they serve as the interface for stakeholders and regulators, who often rely on them for their accurate financial information.
It is very unsettling to find that “47% of CFOs felt one or more could be justified in an economic downturn” while “15% of CFOs surveyed would be willing to make cash payments to win or retain business and 4% view misstating a company’s financial performance as justifiable to help a business survive”. Less than half of the CFO respondents have undertaken any anti-bribery and anti-corruption (ABAC) training while 16% were not aware that they may be held liable for the actions of their 3rd party agents.
This group of executives [CFOs] (while not large in absolute number) responded that unethical — potentially criminal — actions in the interests of business survival can be justified. Many appear to be insufficiently aware of significant corruption risks. – EY 12th Global Fraud Survey
With greater volatility in the economy and cost cutting, there is a great risk that CFOs will be in the position to exercise their discretion that may lead to fraudulent activities, as their knowledge of fraud and its seriousness is found to be somewhat lacking.
It is important that CFOs set the tone while the board challenges it, but it seems that CFOs are more in tune to appease the board than to bluntly present the reality.
With 39% respondents claiming that bribery and corruption practices are wide-spread in their markets, and 24% respondents believing that this has increased due to the economic downturn, there is much work to do to change this culture.
Compliance Culture – Tone from the Top
Dodd-Frank has been praised to promote greater whistle-blowing Compliance programs and an overhaul of Compliance culture, with the bounty scheme seeing increases the quality and quantity of whistle-blowers. Not surprisingly, regions most in favor of such a scheme include Africa, with 79% in favor, and Far East Asia, with 74% in favor.
Unfortunately boards tend to struggle with changing cultures to enhance Compliance, particularly those who are entering new markets. It is said that Rome was not built in a day, and ditto goes to cultural change.
EY states that it is vital to have strong communication lines between all businesses and the board, to swiftly manage any risks to the business, furthermore, a strong internal whistle-blowing program will also be ideal to manage risks promptly before it would reach the external channels. Furthermore, a good understanding of local laws and risks is important as well as the cultural norms.
Growing beyond, therefore, requires a nuanced view of individual markets and cultural norms balanced against the statutory language of a proliferating number of ABAC laws.
With more and more extra-territorial far-reaching ABAC rules such as UK’s Bribery Act and the US Foreign Corrupt Practices Act (FCPA), companies with weak controls and a CFO without ABAC knowledge need to act quick and act now.