Companies around the world continue to face significant fraud, bribery and corruption risks, according to EY’s report ‘Navigating today’s complex business risks’. Many companies are struggling to deploy effective compliance programs, further underlining the need for audit committee oversight.

The survey polled 3,000 board members, executives, managers and their teams across Europe, the Middle East, India and Africa. While companies have generally made progress in tackling bribery, corruption and fraud, many are finding it hard to change an ingrained attitude that bribery and unethical behavior is sometimes justified.

Executives and their employees are under increased personal pressure – from inside the company and from investors – to produce growth in extremely challenging conditions.

To reach their targets, many companies are looking to cut costs or move into new, rapid-growth markets. These are triggers for unethical conduct. Companies must address the increased fraud, bribery and corruption risks that can arise from these strategies.

The majority of respondents believe that bribery and corrupt practices in rapid growth markets are widespread – nearly twice as many as in mature markets.

When someone’s personal remuneration or career progression is at stake, the incentives for unethical conduct can be strong. A focus on growth and cost cutting can weaken the systems and teams in place to prevent and detect unethical behavior.

Financial manipulation is widespread. An alarming number of survey respondents were aware of unethical conduct. One in five said they had seen financial manipulation of some kind occurring in their company. Its two most common forms were overstated sales and understated costs.

More than a third of respondents said companies in their countries often reported financial performance to be better than it is. Those interviewed in rapid-growth markets more frequently pointed to this troubling conduct. But there are mature markets with indications of an acute problem too. For example, 61 per cent of respondents from Spain said results were often overstated.

The survey suggests the need for companies to focus on and strengthen their compliance efforts. It identified four problems that need to addressed:

• Senior management thinks that programmes are more effective than they actually are;

• Compliance programmes are too narrow or not seen as relevant;

• Programs are perceived as constraining competitiveness in the market;

• The increased risk due to current market conditions has not been matched by increased compliance efforts.

While being far from grounds for complacency, attitudes are changing. There are signs that compliance messages are gradually getting through to employees.

The percentage of respondents believing that a list of unethical practices could not be justified increased significantly compared with a similar EY study from 2009. But, for a large minority, attitudes seem hard to change. Over a quarter of sales and marketing respondents think it is acceptable to offer personal gifts or services to win or retain business.

In India, over a third of all respondents said it was justifiable to offer cash payments to win or retain work. And almost half of directors and senior management said they knew of some kind of irregular financial reporting in their company.

Businesses face significant risks in this area. Audit committees in Malta can help to ensure that the board of directors and management is aware of the threat and is responding appropriately. Complacency – “it couldn’t happen in our company” – must be challenged.

Ultimately, the reputational damage caused by unethical behavior could be far more punishing than regulatory fines and shareholder litigation.

Anthony Doublet is a partner at EY Malta.

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