The Covid-19 pandemic has accelerated digitalisation in 2020. The transformation predicted to take its course in the coming years was forced on businesses within a couple of months. The concern for corporate Malaysia now is whether businesses can ride this wave through while maintaining competency, accountability, compliance and transparency.
Digitalisation is a double-edged sword. It has been proven to bring about changes in the way we think, communicate, collaborate and conduct daily affairs. It enables innovation, making processes more efficient and creating new business models. But it also poses significant implications for the area of compliance and business integrity.
The enforcement of Section 17A, MACC (Amendment) Act 2018 on corporate liability now criminalises those running corporations for acts of bribery committed by persons associated with it. The only defense in court for those in charge would be to ensure preventive measures had been undertaken to mitigate the risks of bribery/corruption in the first place. Digitalisation enables the use of new risk management tools to monitor and detect fraud/bribery/corruption automatically and provide digital solutions in improving third party due diligence. Furthermore, e-procurement/e-tender solutions could offer a win-win situation for both the public and private sector in leveling the playing field between businesses and enhancing transparency.
The use of data analytics for risk assessments and continuous monitoring can complement qualitative methodologies, thereby reducing false positives and false negatives. However, data analytics is not a replacement for human judgement and professional scepticism. It complements judgment/scepticism with identifiable and verifiable results through statistical processes.
As we fraud examiners see things, the single most effective means to mitigate the risk of fraud within organisations is to increase the “perception of detection”. When individuals feel that they are being watched, they will act in a manner acceptable to the organisation. Take for instance a situation in which payments are being made with illegal intent (eg, bribery): real-time monitoring of transactions via data analytics software will be able to pick up anomalies in these payments as compared with those made in usual business practice. The anomalies detected are based on algorithms developed through machine learning, which picks up those transactions that seem to be out of the norm compared with the historical activity of the organisation. It would be rather impossible for individuals in the organisation to predict which transactions are going to be picked up/highlighted by the software.
Knowing who you do business with is often another concern in both the public and private sector. Here we see the adoption of tools able to conduct background checks (including beneficial ownership of corporations, to an extent) with a global informational reach and review relationships between parties concerned in an arrangement with visualisation capabilities.
Gone are the days we rely on self-disclosure from individuals or corporations in attaining the right balance of due diligence information. Applicable software and tools are available to scavenge through public and private (with consent) domains and registers to acquire required information.
Organisations should also consider moving towards e-procurement/e-tender, vendor and document management solutions, which would enhance accountability and transparency while capturing the trail of information and documentation concerning activities and transactions with external parties. This mitigates the risk of abuse in the procurement process while highlighting noncompliance and misguided operational deficiencies.
Furthermore, digitalisation is enabling boards of directors, senior management and compliance officers get more timely information on compliance risks and enhances communication of rules and regulatory requirements.
Embracing technology for business integrity would be the way forward as we continue pivot towards digitalisation. Future thought, however, will be on data protection and cybersecurity which needs to be accounted for when adopting new tools for business improvement and integrity.
Certified fraud examiner
Damansara Perdana, Petaling Jaya
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