Successful organisations understand that investing in procurement fraud and corruption risk mitigation is a crucial step towards building a culture of transparency and accountability.
The great aim of education is not knowledge but action
In today's interconnected and continually evolving business landscape, preventing corruption has become an essential imperative for organisations aiming to maintain trust, sustainability, and long-term success. Corruption not only damages a company's reputation but erodes public trust, undermines economic growth, and poses legal and financial risks.
To combat this pervasive issue, many businesses are adopting a proactive approach that integrates anti-corruption measures into their core strategies. This article explores a comprehensive business approach to prevent corruption, encompassing ethical leadership, robust compliance mechanisms, transparency, and a values based culture.
There are many challenges in preventing corruption that includes high volumes of business activity and operations, from daily procurement and invoicing to sales and marketing and targeting a new audience or clients in business development. Increasing knowledge, creativity and engagement is the new approach in creating a corruption prevention environment.
Taking a new approach to prevent corruption
When considering a new approach to corruption prevention and mitigation, new assumptions must be made and options introduced:
Performance measurement: Recognising that data sources are available within an organisation to detect, mitigate and measure the performance of an anti-corruption approach.
Anti-corruption resources: It must be understood that it is the responsibility of all staff to help introduce a prevention approach in their area of responsibility, to support an anti-corruption culture with consistent engagement in discussing and creating a new environment and response to risk.
Internal control measures: Robust internal control measures that document decision making are at the centre of prevention. Consistent assessment should be introduced particularly where new corruption and procurement fraud risks are identified.
Leadership example and message: Consistently setting the example for an organisation, particularly where it is building relationships with suppliers, local communities, local and national governments and sending a strong message, is a starting point in creating a corruption prevention environment.
Corporate social responsibility: Recognising that attitudes towards corruption prevention will be enhanced where there is active participation in social responsibility initiatives, environmental protection and community development showcasing dedication and an intention to create a positive impact.
It is not uncommon in many organisations for the value to data and its analysis to be underestimated. Identifying relevant sources of data and using a consistent method of detection, where fraud risk is identified, to support the introduction of additional corruption prevention measures.
It is also not unusual for organisations to focus on the tender process as a primary source of corruption risk. An insider recognises where the control weaknesses are, understanding this risk will help introduce and manage mitigation control measures. A large number of corruption cases seen over the years happen in contract management, asset management and the end of the procurement lifecycle.
Corruption thrives in the absence of accountability and transparency
Benefits of data analysis
With this restricted view of corruption risk, what limited data sources can you use to identify corruption and does the individual carrying out the analysis know the methods of committing corruption and its associated procurement fraud and financial crime risk so that any analysis results can be further scrutinised and a risk picture put together.
An insider threat can target many areas of an organisation, so the proactive use of data analysis should start at the vendor onboarding stage, procurement route, tender process including award through to contract management, invoicing and asset management.
Education and awareness
Does leadership fully understand the benefits that education can have in protecting an organisation from financial loss within procurement, the impact from procurement fraud and corruption schemes and its ability to identify risk and adequately respond to fraud and corruption within a global supply chain?
I recently polled a number of organisations on the type of corruption and procurement fraud training they provide for their staff. The responses varied from 'we provide eLearning and the procurement staff provide ad-hoc training' to 'our operations team decide when there is a requirement'.
On many occasions it has been a challenge to persuade leaders of the benefits of procurement, fraud and corruption education and how it can positively impact various roles within an organisation, and although the value of such education can be quite significant, many leaders don’t see or believe that education on the basics of procurement corruption and fraud risk mitigation can have such a positive financial impact on their organisation.
When you cover areas such as risk, prevention and detection including how to design out fraud and corruption risk within an organisation, there can be a significant change in perspective.
A new way of thinking
Staff that understand the typologies of procurement fraud and corruption, areas of procurement at risk, how and where it can be committed allows them to understand what risk looks like within their working environment and how they can respond within their own areas of responsibility. It also allows each member of staff to understand how they fit into the company’s anti-corruption strategy.
The Association of Certified Fraud Examiners in their Report to the Nations highlighted that organisations that provide fraud training see an average increase in 19% for hotline reports. Put together with proactive data analysis has a greater opportunity to identify and mitigate significant levels of corruption risk.
On a number of occasions, individuals that have attended courses suddenly realise having been given live case examples, that the conduct and behaviours that they have seen in their organisation warrant further scrutiny.
The results of our training alone has seen organisations introducing field compliance teams because they recognise that there are gaps in their contract management and compliance regime, that include verifying work as complete and assessing regular failures in equipment for substituted product risk and introducing hotline capabilities. Resources can also be tasked to check the root cause of the reported problem and whether there are bigger concerns.
Others have recognised that there are many information sources within their organisation that aren’t being considered as part of its risk assessment and that they are at a much greater risk from non-compliance with the US Foreign Corrupt Practices Act and UK Bribery Act than they realised.
Examples have included Event Management contracts organised by a Human Resource departments that included the management of cash for these events, increasing the fraud and bribery risk to the organisation that had previously gone unnoticed.
It is not uncommon for leaders to reassess the reporting systems within the organisation to receive information or allegations and the risk and challenges in protecting the identity of and individual who made a whistleblower report. The result of creating a compliance team to collect and analyse its own data sources and introduce reporting procedures give organisations a greater ability to profile and respond to risk reports.
Introducing robust compliance procedures
A well-designed compliance programme serves as a critical safeguard against corruption. As no two organisations operational structure are the same, a programme should be tailored to the organisation's specific risks and operational framework. Key components of a robust compliance mechanism might include:
Operational policies: Ensuring that there are strong procurement, finance and asset management procedures with published compliance expectations.
Anti-corruption procedures: Introducing anti-corruption polices and procedures including gifts and hospitality, conflicts of interest and expenses with published compliance expectations.
Due diligence: Implementing strong due diligence procedures to evaluate financial crime risk including conflicts of interest from staff and suppliers.
Reporting channels: Establishing the routes in which staff, supplier and external reports can be received that includes confidential reporting channels that allow employees and stakeholders to report suspected corruption without fear of retaliation.
Risk assessment: Introducing an annual risk assessment where compliance procedures are reviewed for their adequacy and support to an organisations anti-corruption strategy.
Introducing anti-corruption culture
A culture of integrity is the backbone of an effective anti-corruption strategy. When employees embrace ethical behaviour and an organisations values, they become advocates for preventing corruption. Although broad in scope, introducing anti-corruption culture should consider communication, engagement, transparency and accountability are some of the ways in which anti-corruption culture can be introduced.
Lead by example: Encouraging leadership, management and staff to consistently model ethical behaviour and decision-making based on organisation values to reinforce the importance of the new approach.
Empowerment and ownership: Empowering employees to take ownership and decision making in driving anti-corruption culture and create an environment where ethical issues can be openly discussed and reported without fear of retaliation.
Continuous improvement: Evaluating the performance and continual improvement of an anti-corruption culture and introduce measures to ensure that a strategy will remain current and effective.
The power of anti-corruption risk assessment
In a comment within the Review into the risks of fraud and corruption in local government procurement, MLCLG local government respondents confirmed that although risk assessment was carried out, they highlighted that training in this area was necessary.
There are a number of annual reports and assessments globally including PWC, KPMG, ACFE and Kroll that highlight the variety and complexity of global fraud and corruption threats and in cases highlight the financial impact of procurement fraud and corruption at a national level. Yet few governments globally focus on procurement fraud investigation or have developed a national strategy to enhance risk mitigation. Education is at the centre of any strategy because a natural consequence in awareness of procurement fraud methodology and control measures to mitigate risk should be an increase in reporting of suspected illicit behaviour.
And finally, the introduction of awareness and training will create a starting point that can measure the benefits of education, the increase in risk identification and performance of a risk mitigation strategy. Whether it's the increased reporting or information sharing, the increase in cases, or the measurement of revenues protected or recovered, when asked whether training can have a benefit to an organisation, it isn’t just guesswork the figures speak for themselves.
PUBLISHING ANTI-CORRUPTION STRATEGY
In addition to the areas already discussed, when constructing an anti-corruption strategy and long term planning, several areas should be considered for its success.
Anti-corruption framework: A strategic risk management approach that has a structured decision making and change management approach to support a coordinated identification and mitigation response where corruption risk is reported or identified.
Allocation of resources: Following the completion of an anti-corruption risk assessment, enhancement of resources including expertise and capabilities should be mapped out to achieve organisation goals.
Proactive response: Outlining through policy and procedure how risk, prevention, detection, investigation, disruption, financial recovery, sanction activities are being introduced and followed.
Communication strategy: Introducing an approach where the flow of internal and external information to maximise the opportunity to identify and mitigation risk including anti-corruption message is clear.
Measurement and performance: As part of a data collection approach, measuring the performance of compliance programmes, anti-corruption culture, reporting and action taken and change management required.
Cost benefit: Although measuring the financial benefit in introducing strong prevention measures can never be fully established, measuring the fraud detected and losses prevented is a positive approach in highlighting the success of the strategy.
Preparedness and planning: Strategic risk management might include developing contingency plans and response strategies to ensure that the organisation is better prepared to manage and mitigate the effects of unexpected corruption and/or associated financial crime events.
Preventing corruption requires a holistic approach that addresses the various dimensions of an organisation's operations and culture. By promoting transparency, strengthening corporate governance, implementing robust internal controls, nurturing ethical leadership, and engaging all staff and anti-corruption stakeholders, businesses can create an environment where corruption finds no foothold. Embracing such an approach not only protects the organisation's reputation but also contributes to a healthier and more sustainable business ecosystem.
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