NEXT: Building a corruption-free business

by Zaakir Mohamed. Here are eight ways to prevent corruption in your business. As the Commission of Inquiry into State Capture continues, the sheer scope of how many South African business people have become involved in alleged corruption is becoming clearer. Corruption is clearly endemic throughout the world. Shockingly, bribery, theft, corruption and tax evasion cost developing countries some US$1.26 trillion each year.

The financial and reputational risks can be severe; and include not only the loss that an organisation may suffer from corrupt activity, but also the costs that may be incurred investigating the incidents towards any legal processes. South African businesses need to look seriously at how to protect themselves from getting embroiled in corrupt activities. These are some steps that corporates can take to mitigate the risk of corruption among their own employees:

1. Understand the law and other regulations

It is vital for organisations to understand and keep up to date with the anti-bribery and anti-corruption (ABAC) legislation and regulatory environment in their own jurisdictions, to ensure that how they operate always falls within legal boundaries. In South Africa alone, several pieces of legislation exist that companies should be aware of.

2. Conduct a risk assessment

A risk assessment is the first step towards establishing an effective and meaningful ABAC compliance programme. It should include the risks posed by the company’s operations; the extent of its business with government departments; its use of agents and other intermediaries; the regulatory environments of the countries with which it does business; an analysis of the company’s existing policies and controls to mitigate its risk; and the implementation of an anti-corruption compliance programme.

3. Set the tone top-down

Top-level commitment to ABAC compliance drives an ethical culture of integrity within an organisation.

4. Always conduct due diligence

Due diligence forms an integral part of any ABAC compliance programme; and should be conducted at all times not only on staff but also on business partners, agents, suppliers and service providers.

5. Keep reviewing your policy

Simply put, all companies should have effective systems for reviewing and updating their ABAC policy frameworks. An effective policy framework will include policies in respect of fraud and corruption, whistleblowing, gifts and donations, procurement, and financial policies and procedures.

6. Communicate and train

Awareness of the ABAC policy and training about it needs to occur from an employee’s first day of employment and continue. Training is particularly vital to employees who may be dealing with high-risk business partners, or function in high-risk markets or business units.

7. Protect whistleblowers, always

More often than not, irregular conduct is reported by whistleblowers who are brave enough to come forward. Companies need to create safe spaces in which to expose incidents without fear of reprisals.

8. Monitor and review

ABAC risks change and it is important for organisations to undertake periodic reassessments of their risk profiles. Just as it makes sense to have a robust compliance programme in the first place, it makes sense to also make provision to monitor and review it as the need arises.

To illustrate what the absence of such a policy could result in, I want to relate the details of a case I was involved in investigating. In this instance, a whistleblower in a business drew attention to some procurement red flags and questionable payments to a service provider that had been doing business with the firm for many years. The severity of the situation was not realised since it was assumed that the issues related merely to minor administrative errors. The concerns raised by the whistleblower were investigated much later, only because of ongoing reporting by the whistleblower. The investigation revealed that fraud and corruption amounting to a loss of R21 million by the company had occurred.

Had there been a risk assessment process in place, it would have highlighted the lack of segregation of duties and effective internal controls in the signing off of invoices. Also, had a due diligence process been applied, it would have shown that there were links between the directors of the service provider and a senior employee of the firm. In addition, if staff in the finance department had been trained to look out for red flags, the fraudulent scheme would probably have been identified much sooner. This case illustrates the importance of having a meaningful and well thought-out anti-bribery and corruption compliance programme which encompasses the various measures required to mitigate the risk of corrupt activity.

Zaakir Mohamed is director and head of Corporate Investigations and Forensics at the commercial law firm, CMS South Africa (previously CMS RM Partners). Before joining CMS, as a top five leading global law firm, RM Partners was founded by senior lawyers looking to transform and modernise the South African legal market, but who also understand the African and the international market. CMS South Africa provides the full spectrum legal, tax and transaction advisory services.

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