“The first and worst of all frauds is to cheat one’s self”; Corruption, fraud and scandals are common in M’sian business these days

Updated: Friday January 17, 2014 MYT 7:36:33 AM

Corruption, fraud and scandals are common in M’sian business these days

BY B.K. SIDHU

CORRUPTION, fraud and bribery scandals are common these days. They happen in every industry, although the degree may vary from sector to sector. Although many cases are being investigated by the authorities, fraud is indeed on the rise. This week, one of the leading audit, tax and advisory firms, KPMG, revealed the findings of a survey it had carried out on fraud, corruption and bribery in Malaysia. The glaring finding is that fraud cases have increased by nearly 100% in Malaysia over the past three years.This is because some companies in Malaysia believe that the best way to win contracts is by giving kickbacks.

To some, it is better to win a contract by paying out some money rather than not getting it at all. A few years ago, it came to light that a French telecoms company had paid off some local consultants to obtain information on marketing strategy. Many are willing to pay, as long as they don’t get caught.

The common factors that trigger fraud in companies, according to the survey, are poor internal controls, the lack of skill sets to detect fraud and lack of fraud awareness training to detect “red flags”.

Fraud may be on the rise, but a startling discovery is that business cannot be done in Malaysia without paying bribes. This is threatening the very fabric of Malaysia’s business landscape.

As it is, bribe-taking was found to be most rampant in Malaysia among 30 countries surveyed last year by Transparency International, even as the country improved its ranking to 54th spot from 60th among 176 nations in the institution’s Corruption Perception Index.

Bribery and fraud, including kickbacks, pose the biggest risks to industries in the future, according to the survey, and a lot occurs via false invoicing, misappropriation of funds, false claims, counterfeiting and piracy.

Who actually commits fraud?

KPMG Malaysia’s findings paint the profile of a typical fraudster as a 26 to 40-year-old male with an annual income of RM60,000 and below, and those who have been with an organisation for five years or less.

Why did they do it?

The biggest motivation is greed and the desire to maintain a certain lifestyle that they have become accustomed to.

More than 40% of the respondents felt that people commit fraud because they are strapped for cash to live the lifestyles they have chosen. Furthermore, the poor internal controls in organisations allowed them to do it.

The survey was done with mostly management heads from 100 public-listed companies, who felt that fraud had also become more sophisticated than it used to be five years ago. It is more difficult to detect fraud now and corruption is targeted at certain business processes.

Talking about processes, procurement is a big area often said to be open to corruption and bribery. This is one area where even the public sector has come under scrutiny. Just this week, the Institute for Democracy and Economic Affairs said it believed the country could save up to RM2.3bil if transparency in procurement is improved.

Corruption, fraud and bribery, if left unchecked, can increase the cost of doing business in the country. Essentially, companies have to ask themselves whether they have enough anti-fraud policies and procedures to prevent fraud.

KPMG Malaysia stated that the most common factors that contributed to unethical behaviour were poor communication of an organisation’s values or code of ethics/code of conduct, examples shown by senior management and the ethical culture within the organisation.

The Malaysian Anti-Corruption Commission has said it was looking at the survey findings and wanted to come up with better programmes to fight corruption in organisations, placing emphasis on detection, prevention and education. But don’t expect immediate results, as educating people can take time.

However, if nothing is done, it will just get worse. And as the basic tenet of corruption is that it has two sides – a giver and a taker – someone has to stop before it can be tackled.

Business Editor (News) B K Sidhu likes English poet Philip James Bailey’s quote, “The first and worst of all frauds is to cheat one’s self”.