Videos on three areas of sustainability

The struggle for a better environment and a place for all of us to live.

A video on anti-corruption and not least some of the most hidden aspects of how it affects our lives I think it is a great interpretation by Saudi Arabian students. Thanks

Remembering that fraud also have many faces and that just because it is wrapped in a nice looking package it is still cheating and lying creating a asymmetric system of knowledge.

Combating Corruption, Bribery and Fraud

For the past few months I have been working on a project that should end up in a management system that would support the 10th principle of the Global Compact.

While we in many ways have embraced the potential that these changes have brought with them, there are also worries that the face of corruption and fraud will change in much the same way. Just as new possibilities for wealth creation have emerged, so have new avenues and possibilities for Bribery, Fraud and corruption.

Some efforts have been made to combat the increase in corrupt behaviour, which in themselves are good and live up to some of the very principles that we think highly off. But at the same time, there seems to be no decline in world corruption or fraud for that matter.

The 10th principle of the UN Global Compact concerns the subject of Corruption and how organisation deals with the subject. According to UNs own communication, this has been and continues to be the most difficult area to work with. While most signatories of the GC have identified the area as being a major obstacle in their work, very little evidence has been found that companies are effectively combating corruption. For instance only 20% of signatories had an anti-corruption policy that related to their own supply chain.

The OECD Convention on Bribery of Foreign Public Officials in International Business has created a framework from which business, governments and NGO can work together to combat corruption. And while the charter does subscribe a way for business to understand and articulate how corruption affects their operation it does not give any concrete advice on how anti-corruption work should look like in the field.

The aim of the Copenhagen Charter is to remedy this discrepancy and create a real, tangible and systematic approach to anti-corruption work in business and organisation in general. Based on these guidelines I have been part of the process of formulating and creating a working platform from which such work could be undertaken. The process have led us to a point were we now have 13 core principles and a auditing-system from an were BFC effort can be undertaken.

The principles are:

  • Ensure that a Code of Ethics or Code of Conduct is implemented which is inline with international institutional norms and which promote high ethical standards.

Codes of ethics form the backbone of the organisations work against corrupt and fraudulent behaviour. It formulates the practical guidelines that all employees need to follow within the organisation in order to comply with the guidelines set by the board and executive management. Both corruption and fraud can be difficult to identify and employees in the field need to know exactly what the corporate policy is for accepted behaviour for receiving or giving gifts or how to bid for contracts. A Code of Conduct helps the employee take decisions and identify situations, which can lead to issues of concern.

  • Organisations implement a sufficient level of financial and operative independence. Furthermore the organisation needs to implement internal and external audit coverage with the aim of uncovering corruption and possible fraud.

Auditors should be able to operate freely within the organisation. Even though most audits do not uncover corruption or fraud, is the independence of auditors send a powerful message to would-be whistle-blowers that an independent and unbiased system of control exists.

  • Develop a system that encourages both employees and managers to communicate and report, to the relevant independent body all irregularities. Implement a procedure that ensures that these reports will be taken serious by the receiver, who has the power and authority to do investigate the claim.
  • Implement an effective communicative system with local and regional authorities that ensure that the organisation’s work is transparent and auditable by both governmental and organisational auditors.

Working together with local and national governmental agencies will enable one to create a system which is transparent and auditable not only by the organisations own auditors but also from third parties. Third parties will have other ideas and insights into local conditions, which is hard to get insight into as an international corporation.

  • Organisations need to work with government officials and organisations in order to create guidelines and systems for disclosure of governance practices and transactions between the two parties.

It is the obligation of both the company and the governmental agencies that it works with to disclose as much information about their transactions as necessary to prevent dishonest behaviour. However, a system is needed in order to efficiently and effectively spread information to the relevant stakeholders’, in this case governmental agencies, who have a interest.

  • Designated and qualified staffs within the organisation have to play an active role in evaluating the efficiency and effectiveness of financial and internal control systems on a regular basis. On a regular basis they need to follow up on recommendations related to Corruption and Fraud Detection.

Like any other monitoring system, a systematic approach to anti-corruption and fraud monitoring and detection, needs some form of efficient mechanism for updates. The ways in which these types of acts are committed is constantly changing and is being developed mainly because corruption and fraud is a crime in most countries and perpetrators have to develop their techniques in order not to be prosecuted.

  • The organisation needs to focus its control and audit strategies more on areas and operations prone to fraud and corruption by developing effective high-risk indicators, which can be effectively measured and managed.

What gets measured gets managed is a old saying within management, but one needs to know what to measure before an effective system can be put into place. Every company and industry is different and subject to their own dynamics and business culture. Within fraud and corruption there are no universal system that can just be implemented.

In order to effectively combat devious behaviour one must incorporate the dynamics of the business if one is to be successful. It is therefore essential that any system is based on local and industry knowledge and that people with the appropriate competencies are involved in the formulation of the systems indicators.

  • Use multiple communications means to distribute your audit reports and invite stakeholders to participate in the investigation and establishment of a transparent organisation.

One of the most effective anti-corruption and fraud systems that can be implemented is to invite everybody to look inside, so that a critical look can be taken on the audit process. An auditor who thinks he knows everything knows nothing and by inviting stakeholders to participate in the continued investigation, one can create a basis of continued evaluation and transparency in the organisation.

  • Communicate in a language that stakeholders of the organisation understands

If you communicate in a way, which alienates your audience, you will never be able to reduce corruption in your organisation. One might argue that using technical language will be more accurate and the from a legal point of view it would be more correct but the fact is that if you want people to read and understand what you are trying to say, then the reporting needs to be understandable.

  • Use a network approach to combating corruption and fraud.

White-collar crime is a cross border discipline and as with the rise of globalisation, there is a need for business to learn, share and exchange knowledge from other parts of the world. No organisation is an island and if the business is divided on the fight on corruption and fraud it will ultimately loose the battle. Using a network approach and gartering resources from all levels of the organisation to be the eyes and ears of the organisation enables a much more effective intelligence on what is going on. While the information gathered might not directly lead to disclosure of crime, it highlights areas where there could be parts of the system which are not transparent and therefore can be subject to covering up wrong doing.

  • Ensure that systems for the effective exchange and proliferation of knowledge are ensured both inside and outside the organisation.

Like the network approach can be used to gather information, it can also be a effective way to communicate with all parts of the organisation. In the information age, organisations need to have a reliable system for communicating with key stakeholders in order to combat rumours and getting a voice in a otherwise overcrowded media scene. If a company is branded as being corrupt or subject to large-scale fraud, it can cost its ability to conduct business and if it needs to establish channels of communication after the event, it will often be too late.

  • Ensure that the systems for evaluation and incentives for management are established which support anti-corruption and fraud efforts in order to motivate employee ethical behaviour.

One of the major issues within corporate incentive plans is that they have often led to or initiated corrupt behaviour because of their design. The way in which companies compensate their managers and executives, have to be designed in a way that reduces the possibility of corrupt or fraudulent behaviour from occurring. This can example is through improved transparency in the incentive governance structure or third part validation of performance indicators. In high-risk regions, a managerial and specialist rotation program can also be in place in order to reduce the chance that top executives becomes too involved in the local business culture.

  • Ensure that the organisation proactively functions as an example to be followed on fraud and corruption through international committees and working groups.

The ability to be innovative and more efficient is not only limited to other areas of business but also just as much within the field of auditing and governance. As knowledge within the organisation about fraud and corruption is increased, so is the ability to find new ways and systems for efficient governance in these areas. Working cross-culturally and tapping into these streams of knowledge allows an organisation as a whole to progress and innovate new ways to manage these areas. A committee function allows for effective management and the development of best practice techniques that eventually can find its way into the Code of Ethics or as part of the audit process system.

You can download TheCharter here.

Identifying the fraudster

The 10th principle of the Global Compact states “Businesses should work against corruption in all its forms, including extortion and bribery.” But hand in hand with corruption comes fraud. In the so-called developed world we might have been able to reduce corrupt behavior to a large extend but instead we have given room for white-collar crime or fraud.

According to a resent survey done by KPMG there are able reason why business should be extra alert but also that there are tell-tale signs that are not being heard and followed by organisations.

“It is surprising that companies continue to ignore warning signs, particularly in light of the recession. While cost-cutting initiatives associated with the downturn may have played their part in the observed shift, such cuts may prove a false economy. While defenses are down, the fraudster sees the opportunity to capitalize. The need for companies to be vigilant has never seemed more important.”

So who is these fraudsters and how do one spot some of the characteristics of a fraud being committed.

He does typically not work alone. In most cases (61%) he (and yes it is a he) works with others in-order to do his crime. The fraudster can either work with internal parties or external contractors.

The fraudster is a male between the ages of 36 and 45 years, who works in the finance function or finance related role. The unique organizational position grants him access and knowledge about the internal controls and especially where the governance structure is weak and can be exploited.

He has been with the company for more than 10 years, and holds a senior management position. Such individuals will be better able to override controls and may have accumulated a good deal of personal trust enabling him to manipulate key organisational members in order to do his crime.

Evija Miezite, Associate Director, KPMG Baltics SIA, leader of forensic projects in Latvia, notes that “According to the survey, the typical fraudster most commonly works in the procurement or sales function. The finance function often plays the role of ‘policing’ these functions. We also note that in Eastern Europe, some 89 per cent of persons investigated, had been employed at the company for more than 3 years (of which more than half had been employed for longer than 6 years) and 52 per cent of the frauds had run for more than 3 years before they were detected.”

Another major problem is that organisations are very reluctant to communicate about the fraud being committed meaning that the perpetrator in practice can “shop” around in other organisations committing the same crime again and again.

The Danish tax authorities go after Airport tycoon

Airport runway800 million Danish kronor have been taken out of the country and smuggled to Bermuda via Luxemburg to be cleaned and washed and finally end up in Australia. Or at least this is what the Danish government think has happened.

The case is to appear before the National Tax Tribunal and the claim is that the company Macquarie that is a major shareholder in Copenhagen Airports have sent nearly three billion dollars in tax havens in Bermuda. The 800 million dollars that the Danish tax office wants back is equivalent to 25 percent withholding tax on interest and dividend.

According the, Aage Michelsen a tax professor at the Danish Aarhus University believes that the Danish Government has good chances to get a refund:

“Previously, there was a tendency to recognize the letterbox as correct income earner. But a number of foreign cases have shown that it is changing”

It caused a stir otherwise, since the end of March was revealed that the part state-owned company Copenhagen Airports annually evades tax for a three-digit million amount through a structure involving tax haven companies in Bermuda.

For several years there shareholders and analysts have voiced critique of the company for not disclosing information about is acquisitions and how it reports it finances.

But as long as the company is able to provide shareholders with an adequate return on investment apparently even as passenger numbers have been dropping I guess there will be no action taken for real change.

The facts about Macqurie Airports are:

– Macquarie Airports (MAp) is the world’s largest strategic airport investor.
– MAp is listed on the Australian Stock Exchange ASX and included in the Top 50 on the ASX with a market capitalization of AUD 4.7 billion (equivalent to 22 billion dollars) to around 40,000 investors.
– The majority of shareholders are pension funds and other long-term investors.
– Have investments in airports in Brussels, Rome, Sydney, Copenhagen, Birminghamand Bristol.
– Together, these airports serve over 110 million passengers a year.
– MAp’s airports have after investment Maps shown significant growth in passenger numbers, service quality and economic performance.