FRAUD, bribery and corruption are issues that have always been a sensitive subject, especially where Malaysian businesses are concerned.
Although these days, many companies have taken it upon themselves to put policies and controls in place to curb those issues, the underlying notion that fraud, bribery and corruption is part and parcel of doing business in Malaysia, unfortunately still exists.
In a survey conducted by one of the big four accounting firms - KPMG Malaysia, which involved 100 listed companies on Bursa Malaysia, 64% of respondents believed that business cannot be done in Malaysia without paying bribes.
More alarming is the fact that out of those that took part in the survey, a majority being top management, a whopping 90% opined that fraud is an inevitable cost of doing business, while 71% of them said the same about bribery and corruption.
KPMG tried to quantify the amount loss due to fraud, but received answers from only 26% of respondents, which revealed that fraud losses amounted to RM2.41mil. Generally, the survey indicated that reported fraud incidents fell within the range of RM10,001 and RM100,000.
At the launch of the survey on Monday, executive director of management and risk consulting Tan Kim Chuan admitted that while the quantum of fraud reported appears to be small, he believes that it is only a fraction of the actual cost of fraud, as many incidents go undetected or unreported.
Speaking to StarBizWeek, Gerald Pillai, managing consultant of Vestra Solutions and certified fraud examiner, says: “While it is hard to quantify monetary losses linked to fraud, I won’t be surprised if it is several times more than the RM2.41mil figure recorded by KPMG’s survey. KPMG is probably right in indicating that many cases go unreported.”
Fraud is any intentional or deliberate act to deprive another of property or money by deception or other unfair means. It can be committed either internally by employees, managers, officers, or owners of the company, or externally by customers, vendors, and other parties.
He adds that the occurrence of fraudulent conduct is more prevalent in supply chain type industries, such as shipping and manufacturing. Also, the incentive for certain individuals to fraudulently “flip” goods for quick gains has been seen in the fast moving consumer goods industry.
“Basically, it’s where companies do not have control over their entire chain of operations, for example where third party vendors are engaged. Companies need to conduct thorough due diligence on these entities to ensure their credibility in tandem with adhering to strict tendering processes,” says Pillai.
Contradiction … or not?
In addition to KPMG’s report, Ernst & Young (E&Y) in its Asia-Pacific Fraud Survey Report Series 2013 released in September last year, found that Malaysia and China had been ranked as one of the most corrupt nations.
Malaysia is listed as a country which is most likely to take shortcuts to meet targets when economic times are tough, the survey said.
According to E&Y’s survey, 39% of the 681 executives, senior managers and working-level employees across eight countries said that bribery or corrupt practices happen widely in Malaysia, nearly double the Asia-Pacific average of 21%.
Just a month later, the World Bank released its ‘Doing Business 2014’ report, which ranked Malaysia sixth among 189 economies, six places higher from a year ago. The World Bank’s report judged the countries based on 10 criteria – such as starting a business, registering property, and paying taxes.
Tan Sri Abu Kassim Mohammed, the chief commissioner of the Malaysian Anti-Corruption Commission (MACC) said the reports contradicted the World Bank’s ranking of the country.
“How can you easily do business when at the same time, you have big problems of corruption or a perceived problem of corruption?” he asked reporters at the launch of KPMG’s report earlier this week.
Meanwhile, Asian Strategic and Leadership Institute chairman for public policy studies Tan Sri Ramon Navaratnam told StarBizWeek that instead of a contradiction, KPMG’s report was in fact a confirmation that corruption “greases” businesses, which makes it easier for businesses to get things done here.
“That there is an acceptable level of corruption in relation to conducting business, I disagree. It may be the reality of conducting business but it must never be an accepted part of doing business. That’s where the shift in paradigm has to occur,” says Pillai.
KPMG Malaysia managing partner Johan Idris warned that the mindset that fraud, bribery and corruption is part and parcel of doing business is dangerous.
“It could result in the cultivation of a somewhat lenient and tolerant attitude towards the occurrence of fraud, with organisations merely reacting to fraud instead of taking proactive steps to nip it in the bud,” he said at the launch.
What Malaysia needs is structural reform, says Navaratnam. “The real danger is that because of the seriousness of corruption and worsening situation, inflation may rise, cost of business will rise, our competitiveness will fall and it poses a serious threat of not achieving developed status by year 2020.
“Obviously political will is lacking, enforcement is weak and laws are not very strong,” he adds.
The Malaysian public is losing its trust in the Government and the relevant authorities as no “big fish” are getting caught.
“There’s a growing feeling in the business community that you will lose out if you don’t indulge in corruption because competitors will win the contracts, licenses and permits, and would be able to do business faster by adapting to corrupt practices. If you’re not in it, you’re out of it. It is a dangerous trend because it shows a deepening and widening corrupt culture,” says Navaratnam.
Points of corruption should be clearly identified to instil transparency and improve efficiency.
It is time for companies to step up and take urgent and tough action before the situation worsens. He adds that if corruption goes beyond the tipping point, the system will slide and there will be little likelihood of improvement from then on.
What can be done?
While many Malaysian companies, listed or otherwise, have an ethics and code of conduct policy in place, the real challenge lies in enforcing and implementing those policies effectively.
Pillai stresses that anti-fraud awareness is an ongoing process, in which companies have to continually reiterate the importance and ramifications of unethical conduct.
“Companies could conduct seminars and workshops to more effectively disseminate its policies. But it’s one thing to learn ethics from a book or attend a seminar on the subject and another to have it internalised.
“How does one act even when no one is watching?” he says.
To be seen as being proactive and serious in curbing fraud, bribery and corruption, companies need to ensure those who engage in such conducts face legal consequences for their actions.