Volume 1 – Bribery and Corruption Risk:
As we launch this year’s Global Fraud and Risk Report, incidents of bribery and corruption continue to destroy livelihoods and cost lives around the world.
The global value of bribery is now estimated to be as high as 1.75 trillion a year, or over 1% of global GDP.1,2 The risk of bribery and corruption also cannot be considered in isolation; it frequently goes hand in hand with other financial crimes, particularly fraud and money laundering. For instance, paying bribes often uses the same mechanisms to release cash as fraudulent activities and the process for disguising corrupt payments involves an inherent element of money laundering.
Public procurement is often highlighted as an at-risk area, with the UN reporting that approximately 10-25% of a public contract’s value may be lost to corruption.3 Across total government spending on public contracts, this amounts to hundreds of billions of dollars of funds often intended to finance essential infrastructure and community development for the world’s most vulnerable people. The risk of bribery and corruption is a two-way street–while governments need to design and enforce anti-bribery legislation and promote a zero-tolerance culture, corporates operating in the sometimes-blurry lines between the public and private sector where corruption thrives also need to bolster their own defenses against bribery. Besides the potential financial impact, the effect on corporate reputation and morale can be just as damaging.
It is therefore reassuring that this year’s Global Fraud and Risk Report reveals a growing focus on bribery and corruption risk in the boardroom. We found that 72% of respondents believe bribery and corruption risk is being given sufficient board-level attention and investment. Additionally, businesses are now arming themselves with the right weapons to combat this risk in a fast-changing international landscape. The vast majority (82%) of organizations have conducted enterprise-wide risk assessments in the past five years and 86% are using proactive data analytics to identify problems before they escalate.
Even so, these defenses must be carefully calibrated and targeted at specific risks to be effective. Despite the apparent focus on risk assessments and data analytics, 82% of respondents still feel corruption is significantly impacting their organizations. Thus, while boardrooms are giving greater attention to bribery and corruption risk, it appears most cannot yet identify and mitigate threats effectively.
One key reason may be globalization, which can put a great divide between distant senior management teams and the reality of local business practices. Organizations with overseas operations must ensure they have the data and insight to monitor all their business units around the globe. In addition, while creating a robust internal corporate culture is important, it does not necessarily filter through increasingly complex international supply chains. Almost half (46%) of our respondents cite a lack of visibility over third parties–including suppliers, customers, agents and distributors–as the leading source of bribery and corruption risk. Risks must be controlled both within and without and, if third parties are relied upon, they need to uphold the same anti-bribery and corruption standards.
The hasty reconfiguring of supply chains in the wake of COVID-19, often outside the usual corporate control structures, has only compounded this challenge. Equally, the pandemic has put organizations under greater financial pressure, with many potentially scrapping or delaying internal spending on preventing and detecting bribery and corruption.
Nonetheless, our findings only reinforce the need for organizations to maintain proper data governance and ensure they have appropriate data analytics capabilities which are aligned with their risk profile. Additionally, depending on the complexity of supply chains and geographical diversity, investing in more sophisticated analytical capabilities that help correlate nontraditional datasets, predict nefarious behavior, and enhance outputs and reporting may be necessary to spot the tell-tale signs of risk in an ocean of internal and external information. They must also consider other creative ways to maintain sight of the risks posed by their third-party relationships, and ensure they are training employees and contractors to spot the risks and know what to do when they see them. Implementing robust whistleblowing procedures that are tailored to each region are also a key component.
The Impact of Incidents
Worldwide, incidents of corruption and other financial crimes continue to take a heavy toll on organizations, with 36% reporting a very significant impact.
The largest organizations felt the effects of this illicit activity most significantly, and there appears to be an inflexion point with firms with a turnover of $10-15 billion (48%) or above $15 billion (57%) more likely to state the impact is very significant. This may be due to more complex company structures and supply chains, which in turn makes it harder to maintain visibility.