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Battling corporate wrongdoing

Chief financial officers play a critical role in detecting and preventing bribery and corruption

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Corporate malfeasance in the form of corruption and bribery is a major risk that many organisations have to deal with. Even in Singapore, which has forged a reputation as a "clean" place for doing business, such incidences have cropped up over the years.

For instance, it came to light in 2017 that Singapore rig builder Keppel Offshore & Marine (Keppel O&M) made corrupt payments of US$55 million between 2001 and 2014 to win 13 contracts with Brazilian oil companies Petrobas and Sete Brasil. After the graft scandal was uncovered, Keppel O&M had to pay US$422 million in fines as part of a global resolution with authorities in the United States, Brazil and Singapore; a record for a Singapore-listed company.

A few years earlier, Singapore Technologies Marine (ST Marine) was busted when at least S$24.9 million in bribes were falsely claimed as entertainment expenses and made to employees of its customers in return for contracts. Seven former ST Marine executives were convicted in 2017 for their roles in the affair.

The financial and reputational costs of such scandals can be very high and widespread, says June Sim, Senior Vice-President, Head of Listing Compliance at Singapore Exchange Regulation.

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"It is very costly because of the steps that you have to put in place in order to gain the confidence of your stakeholders, suppliers, customers. It is going to hit your pocket and fixing it would take time. So, apart from an immediate loss in terms of reputation, you have all these knock-on effects in terms of costs and time that you have to spend," she says.

June Sim, Senior Vice-President, Head of Listing Compliance at Singapore Exchange Regulation

John Purcell, Policy Advisor (Environment, Social and Governance) at CPA Australia, notes that failing to prevent corporate wrong doing can lead to a destruction of a company’s value, and can also "pervert the proper flow of funds, seriously undermining opportunity for wider economic participation".

Points of vulnerability

Due to their complexity, organisations today are prone to risks of corruption because of their widely disbursed operations and long lines of management control, explains Dr Purcell. "Often capacity for early detection comes down to understanding particular points of vulnerability. For example, strategies around entry into new markets, contracting of new supplies, and, in particular, agents, should be accompanied by rigorous processes of approval, monitoring and review," he says.

In particular, finance processes such as sourcing, procurement and billing are most vulnerable to corruption. A such, chief financial officers (CFOs) play a critical role in detecting and preventing bribery and corruption. One area in particular that CFOs need to be aware of is false accounting. "Finance departments accordingly play a vital role in ensuring the integrity of systems and data, and that there are rigorous processes of internal audit," says Dr Purcell.

Whistle-blowing

Experts say that a strong and vigorously enforced whistle-blower protection policy is key to combating corruption, but this needs to part of a more comprehensive process. "A robust whistle-blowing policy where you offer immunity to the informant will encourage people to come forward. However, that by itself is not sufficient. You have to have a periodic review, monitoring audit on your own," says Josephine Choo, Partner, Specialist & Private Client Disputes Practice, at WongPartnership.
 

Josephine Choo, Partner, Specialist & Private Client Disputes Practice, at WongPartnership

"And I think there has to be in place a proper disciplinary process and investigation process, so that it is not just a case of 'I heard someone say something' and that's the end of the matter."

To encourage whistle-blowing, organisations must also foster a culture where employees are not afraid to come forward when they witness incidences of corporate wrongdoing. "There are profound human and interpersonal elements involved in both the perpetrating and prevention of bribery and corruption. Power structures inside organisations need to be understood and recognise that junior staff can feel, and suffer, intimidation to either facilitate or turn a blind eye to bribery and corruption," says Dr Purcell.

He adds that combatting bribery and corruption requires multiple and collaborative approaches because of the difficulties associated with its detection, as well as the challenge of proving such incidences in a legal setting. "This is why we see in many countries increased focus on arrangements which allow early reporting, controlled opportunity for deferred prosecution and greater emphasis on capacity building where regulatory agencies work with the business community in awareness raising."

Values over policy

While putting in place appropriate policies is critical, it is equally important that an organisation’s employees has the right values and character when it comes to doing the right thing. "You can put in the best compliance policies, you can put in all the scare factors, you can make staff and suppliers sign all the usual declarations, but what is actually most important is the values that you put in place in the company. It is the values that will drive the way your staff work," says Low Sai Choy, Director Group Legal & Compliance, Far East Organization.

Ms Sim agrees, but notes that measuring attributes such as character and integrity can be difficult from a regulatory standpoint. "From a regulator's perspective, we always look at qualifications, character and integrity. So how do you get there? We have been always asked to prescribe, but I think will be difficult given that it is really a function of a person's experience and character."

She adds: "You can have the best of procedures but if employees or persons in authority are afraid of escalating such matters to the board, you will never get to the bottom of it, and get things right." 

Dmitry Kosarev, Director, Forensic Services at PwC South East Asia Consulting

Dmitry Kosarev, Director, Forensic Services at PwC South East Asia Consulting, believes that an organisation also needs to invest in preparing its people "to help them understand what they need to do on a day-to-day basis, to prevent and to detect the corrupt practices and how they can take a stand for all of it".
 
Balancing control with growth

While some companies may fear that an overemphasis on compliance can stifle growth, this should never be a consideration if loosening controls risks harming an organisation's integrity. "You should never compromise integrity. You have to comply with the rules and regulations wherever you operate, and if you lose your integrity, your reputation goes as well. How are you going to build a sustainable business based on that?" asks Mr Low. 

This is especially important for Singapore companies that have operations abroad. "So long as you are headquartered or based out of Singapore, then you fly the Singapore flag and the message that needs to go out is that you will never compromise on integrity and values."
 
Indeed, Mr Kosarev notes that Singapore companies may have a tough time dealing with the riskier environment of international markets. "For Singapore based companies, internal control systems may work very well domestically within a safe environment. The question is if you are doing business overseas, you are likely to replicate similar controls outside of Singapore. How well will your controls stand up to challenges, and in particular challenges posed from outside of the corporation?" he says.

"This consideration needs to be embedded in your internal control update and you should have efficient controls in place when doing business outside of Singapore."

This article is part of a series in collaboration with CPA Australia to share knowledge on accounting, business and finance issues.