CORRUPTION IN

FINANCE & ACCOUNTING

GROUP 3 | BSA 2B
THE CORRUPTION
CHECKLIST
Is it considered corruption?
 CHARACTERISTICS OF
CORRUPTION
• Recipients and payers.
• Extortion.
• Lubricant of society.
• An ethical problem.
• Poverty reduction.
• Small is beautiful.
• Culture.
• ‘Kindness among friends’.
THE ROLES OF FINANCE AND
ACCOUNTING DEPARTMENT
The accounting and finance department is at the
center of any organization and is responsible for
ensuring the efficient financial management and
financial controls necessary to support all business
activities.
 Bookkeepingand
Payables/Receivables  Treasury
& Working
 Financial Reporting and Capital Management
Control  Capital Budgeting
 Tax and Compliance  Risk Management
 StrategicPlanning and  CorporateDevelopment
Financial Planning & & Corporate Strategy
Analysis

A COMPANY’S FINANCE &

ACCOUNTING DEPARTMENT: 8
KEY FUNCTIONS
CORRUPTION IN COMPANY’S FINANCE
& ACCOUNTING DEPARTMENT
 The2016 Global Fraud Study by the Association of
Certified Fraud Examiners (ACFE) makes clear that fraud is
a persistent global threat. More occupational fraud
began in the accounting department than in any other
business unit, the study reveals.
 Ofthe frauds analyzed for the study, the majority were
committed by people in accounting, operations, sales,
executive/upper management, customer service,
purchasing, and finance.
 Ofthe fraud cases perpetrated by an individual in the
accounting department, 34.5 percent involved
corruption.
 According to the research conducted as part of the 2016
Global Fraud Study, the most prevalent form of corruption
involves conflicts of interest – those cases in which the
fraudster undertook transactions on behalf of his or her
employer in which he or she had a hidden economic or
personal interest in another party to the transaction, such
as having a secret ownership in a vendor or a family
relationship with a competitor.
 “ Corruption was the scheme that was
most common among the reported cases in
the banking and financial services sector; 37.5
percent of the cases reported to us that were
perpetrated at banks and financial services
organizations involved some form of
corruption.
However, banking and financial services
was not the sector with the highest
percentage of corruption cases; several
industries had a greater percentage of
JAMES RATLEY, CFE,
reported cases that involved corruption.” Co-founder And President Of
Association Of Certified Fraud
Examiners (ACFE)
CORRUPTION CONTROL
 The bookkeeper should never
have signatory powers. He should
never sign blank checks.
 The owner should look at each
deposit (a copy of the deposit
ticket and checks suffices) to see
who is indeed paying the
company.
 Checks should be written only
when all the supporting
documentation is available for
review.
BOOKKEEPING AND
PAYABLES/RECEIVABLES
 The owner should review the bank
reconciliations.
 The owner needs to be aware of
what is transpiring in their company,
because ultimately it comes down
to awareness, and most small
business owners aren't interested
in accounting and its issues.
WAYNE SPIVAK
President & CEO
SBAConsulting.com
TAX AND COMPLIANCE
 Reforms focusing on improving
financial management and
strengthening the role of auditing
agencies have in many countries
achieved greater impact than public
sector reforms on curbing
corruption.
 One such reform is the disclosure of
budget information, which prevents
waste and misappropriation of
resources. For example, Transparency
International Sri Lank promotes
transparent and participatory
budgeting by training local
communities to comment on the
proposed budgets of their local
government.

REFORM PUBLIC ADMINISTRATION

AND FINANCE MANAGEMENT
 Hire external accountants to audit
records and books to ensure that
employees adhere to anti-corruption
policies. Institute a regular schedule in
which auditors examine all financial
records to ensure that all monies --
both incoming and outgoing -- are
legitimate and legal. All transactions
should have a traceable path
through the financial records from
origination to ending point. If
questions arise about specific
transactions, the auditors should flag
the transactions for further
investigation and possible disciplinary
recourse. Forensic accountants may
serve in investigation processes.

UTILIZE EXTERNAL MONITORING

 Make your accounting records
completely transparent to fight
corruption. When all employees
know that financial documents are
readily accessible and available for
examination, you discourage
corruption and wrongdoing.
 Financial records that hide under
the cloak of secrecy invite bribes,
extortion and fraud, especially
within traditionally high-corruption
industries such as banking and
pharmaceuticals.

OPERATE TRANSPARENTLY
 Countries successful at curbing corruption have a
long tradition of government openness, freedom of
the press, transparency and access to information.
Access to information increases the responsiveness of
government bodies, while simultaneously having a
positive effect on the levels of public participation in
a country.
 Transparency International Maldives successfully
advocated for the adoption of one of the world’s
strongest rights to information law by putting pressure
on local MPs via a campaign of SMS text messages.

PROMOTE TRANSPARENCY AND

ACCESS TO INFORMATION
 Institute a procedure whereby
employees, outside consultants and
even customers can report
incidences of corruption that they
witness. Ensure confidentiality to
protect whistle-blowers, which will
help encourage people to use the
system. Investigate every report
thoroughly and dismiss wrongdoers
if you find evidence that supports a
report. Discourage frivolous reports
by instituting negative
consequences for inaccurate
claims

ENCOURAGE REPORTING
 Without access to the international
financial system, corrupt public
officials throughout the world would
not be able to launder and hide the
proceeds of looted state assets.
Major financial centers urgently
need to put in place ways to stop
their banks and cooperating
offshore financial centers from
absorbing illicit flows of money.
 The European Union recently
approved the 4th Anti-Money
Laundering Directive, which requires
EU member-states to create
registers of the beneficial owners of
companies established within their
borders.

CLOSE INTERNATIONAL LOOPHOLES

  Effective law enforcement is essential to
ensure the corrupt are punished and break
the cycle of impunity, or freedom from
punishment or loss.
 Successful enforcement approaches are
supported by a strong legal framework,
law enforcement branches and an
independent and effective court system.

END IMPUNITY
“ INSTITUTIONS, IMPUNITY BECOMES
WITHOUT STRONG WATCHDOG

THE VERY FOUNDATION UPON WHICH

SYSTEMS OF CORRUPTION IS BUILT.
”
RIGOBERTA MENCHU TUM
NOBEL PRIZE LAUREATE