2016 - iqpc - the key to raising awareness and comprehension

IQPC Public Sector Fraud & Corruption Summit, CanberraWednesday 26th October 2016Dr Darren O’Connell MBA FGIA

The key to raising awareness and comprehensionof your compliance program

• What is corruption? The best intentions fail if your employees don’t know what to look for.

• Implementing clear ethical and integrity standards throughout all areas of your organisation.

• Using compliance reminders and surveys to continuously strengthen and measure your organisation’s stance against corruption.

• The integral need for an integrity champion: Audit and policies are not enough.

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0. What is this presentation about?

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Bribery• Bribery is the giving, receiving of money, a gift or other advantage as an

inducement to do something that is dishonest, illegal or a breach of trust.Fraud• Fraud is the criminal deception intending to result in financial or personal gain.Corruption• Corruption is the misuse of public office or power for private gain; or misuse of

private power in relation to business outside the realm of government.Gifts and Benefits• Offering something of financial value that is to the advantage of another

person and in doing so is intending that individual to perform a function improperly or secure business or a business advantage.

Conflicts of Interest• A conflict of interest is a situation in which an employee has competing

professional or personal interests. Such competing interests can make it difficult for individuals to fulfil their PNSW duties impartially.

0. Key Terms

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• Despite some serious concerns being raised by the OECD about Australia’s failure to tackle and prosecute corrupt behaviour, a number of anti-bribery and corruption trends are driving greater compliance and creating increased accountability in Australian organisations when it comes to corrupt behaviour:

1. Increasing scrutiny – Reinforcing the need for law reform, pressuring domestic regulators to cooperate with international counterparts;

2. Law reform – Removal of facilitation payments defence in Australia but due to the growing influence of the UK Bribery Act. Whistleblower protections will encourage disclosure and investigation of wrongdoing;

3. Domestic & international cooperation – A visible coordination between law enforcement agencies to fight cross-border corruption;

4. Cross-border enforcement action – Organisations with offshore operations face greater enforcement of extra-territorial laws;

5. Disclosure obligations – A failure to disclose corruption allegations may expose organisations to the risk of litigation.

1. Key anti-bribery and corruption trends

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6. Contractual obligations – increasing cross-boarder enforcement action resulting in organisations requiring their Australian business partners to include anti-corruption contractual obligations;

7. Anti-corruption compliance frameworks – Anti-corruption trends are making compliance programmes a “ticket to play” because they impart a competitive advantage when operating in higher-risk jurisdictions;

8. Third party verification – Organisations are conducting third party due diligence to mitigate the risk of non-compliance, and the verifying their anti-corruption programme for contractual purposes that reward effective compliance;

9. Socially responsible investments – Ethical and socially responsible investment is popular and tend to yield higher returns, and attract more funds when anti-corruption conduct is assessed; and

10.Benchmarking – Raises awareness about the importance of fighting corruption, reinforcing and aligning compliance to global trends.

1. Key anti-bribery and corruption trends

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• According to Deloitte (2015) 83% of respondents do not see domestic corruption as a Top 5 risk!

1. So why are we in this position?

17%

83%

Is domestic corruption a top five risk for your organisa-tion?

YesNo

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2. What to look for?

…into private hands.

• Tenderer/ Contractor/ supplier

• Property developer

• Business partner

• Family/ friend• Client• Public official• etc

…can be transferred

from a government agency…

Something of value…

• Tender/ Contract/ Purchase

• Information• Approval• Avoid fines,

fees & charges• Employment• Services• Equipment/

vehicles/ assets• Etc

Source: Waldersee, R and Shapiro, A, 2016. Strategic Responses to Corruption – Day 3.

MoneyIdeology

CoercionEgo

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2. What to look for?Tight

Competition

Weak market

Stakeholder/ Industry Culture

Situational perspective

Psychological perspective

Supply of motivated offenders

Available opportunities

Absence of suitable guardians Rationalisation/

Integrity maturity

Motivation/ Pressure

Perceived Opportunities

ArroganceGreed is goodThe owe me

Narcissism

Everybody does itEntitlement

Criminal mindset

LifestyleGamblingConflict of interestDesireSecondary employmentFraud and

CorruptionAbility

Blind trustPoor governance

Corrupted industry association

Manager/ stakeholder override

Low maturity / inexperience

Regulatory capture

Role confusion

Weak policy & Systems

Weak non existence tender processes Approvals

Variations

LicencesDirect negotiations

Exposed assets

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Transaction-generated RisksLow barriers to entry A market characterised by numerous buyers and sellers, and low profit margins.

Asset specificity Investments made in specialised goods or services for unique customers. Location of facilities and the degree of

human capital can also be significant factors.

Weak markets A market with many sellers, few buyers and prices in a state of decline. In addition, a weak market is

characterised by poor regulation.

Peripheral product A good or service that is not the primary focus of an organisation but despite being ancillary is still important.

Low reputational capital Organisations that have little market presence, can close down without being missed, and restart with little

scrutiny.

High relationship / contact A contracting relationship between a buyer and a seller characterised by high frequency social interaction.

Networked industry An industry in which each member has linkages to other members.

Uncertain future work Linked to asset specificity, the business contracted for is highly specific and likely to be a one-off or there are

large gaps between repeat business.

Source: Waldersee, R and Shapiro, A, 2016. Strategic Responses to Corruption – Day 3.

2. What to look for?

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• During the 2000s, the NSW ICAC investigated Railcorp.• It involved employees and managers at many levels of the organisation.• ICAC investigated allegations of:

• Fraud and bribery; • Improper allocation of contracts; • Unauthorised secondary employment; • Failure to declare conflicts of interest; • Falsification of time sheets; and • The cover-up of a safety breach.

• In financial terms RailCorp employees were found to have improperly allocated contracts totalling almost $19 million to companies owned by themselves, their friends or their families, in return for corrupt payments totalling over $2.5 million.

• ICAC reported findings of corrupt conduct on the part of 31 individuals including 14 RailCorp employees and staff of 16 private firms.

2. Operation Monto: key points

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• Success of a compliance program hinges on employee engagement;• Organisational culture is a key risk factor in compromised compliance

and corporate integrity;• Changing organisational culture is a long-term process and outlasts a

typical tenure of a CEO;• What makes employees comply with organisational rules, standards,

legislation and regulation? • Personal value systems aligned to organisational values• All parties seeking to minimise reputational damage

• What characterizes a ‘positive’ organisational compliance culture?• Personal and corporate accountability• Incentives, motivations and rewards

• And, importantly, what can corporate leaders do to encourage compliance behaviour through culture?

• Lead by examples• Collective responsibility / lessons learned

2. Ethics & Integrity: enhancing compliance

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• Starting in 2012, Australia’s TI CPI ranking of least corrupt public sectors has fallen from 7th to 13th in 2015.

• Public and private organisations face a wake-up call!• Whilst the deterioration is of significant concern, Australia:

• Has the knowledge to demonstrate the benefits of ethical, transparent and corrupt-free practices, where integrity systems operate as antidotes to corruption;

• Observes international anti-corruption conventions;• Has public, community, NGO and private institutions that work towards

good governance and transparency, and key elements of strong integrity systems (although a lack of funds make them vulnerable);

• Is involved in supporting programmes available for anti-corruption and transparency work in the Pacific and wider region.

2. Ethics & Integrity: what are the benefits?

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• Yet, as Deloitte (2015) points out, there are seven potential benefits to organisations given Australia’s international reputation for robust integrity systems:

1. Reputation and brand are powerful galvanisers, drawing global interest in products and services, increasing activity, revenue and the size of the tax base;

2. Absence of corruption means a lower cost of doing business every day of the year;

3. It can result in a lower cost of capital;4. It supports easier market access;5. Responsible entities achiever a higher rate of return on investment;6. The best staff naturally gravitate to the most ethical organisations;7. Ethical organisations achieve greater stakeholder value.

2. Ethics & Integrity: what are the benefits?

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Key principle Description1. Proportionate procedures Procedures to prevent fraud and bribery that are

proportionate to the risk that PNSW faces2. Top level commitment Commitment by the PNSW Executive to foster a culture

where fraud and corruption are never acceptable3. Risk assessment The periodic assessment of the nature and extent of

PNSW’s exposure to the potential external and internal risks of fraud and corruption

4. Due diligence Taking a risk based approach, the application of due diligence processes and procedures in respect to customers and third parties who do business and PNSW

5. Communication and training Embedding and understanding fraud and corruption control through periodic and regular communication and training

6. Monitoring and review Periodic and regular reviews of procedures designed to prevent fraud and corruption, and makes improvements where necessary

3. Principles of an anti-corruption framework

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3. Principles of an anti-corruption frameworkPNSW’s approach to fraud and corruption control is based on the NSW Audit Office’s Fraud Control Improvement Kit (2015).

The PNSW Fraud & Corruption Control Framework supports DFSI’s Code of Ethics and Conduct and its governing principals set by the Executive. The scope of the Framework outlines:• PNSW’s requirements that relate to bribery, fraud

and corruption;• The agency's position on bribery, fraud and

corruption matters, as well as the governance of the framework and key roles and responsibilities;

• The DFSI’s Fraud & Corruption Control, Gifts and Benefits and Conflicts of Interest policies, as well as the Code of Ethics and Conduct, detail the specific requirements that must be met by all employees;

• The fraud reporting mechanisms sets out the requirements and processes that must be undertaken if an instance of corruption arises.

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Syst

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Anti

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Gifts

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Key risks relating to Bribery, Fraud and Corruption

Business processes(e.g. Operations, HR, Finance, Strategy, Leasing

Procurement)

The Fraud and Corruption Control Environment

PNSW

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• A good compliance regime should have the ability to remind staff of their obligations under the Code of Conduct.

• Reminders include:• Annual “read and acknowledgement” of the organisation’s Code of

Conduct;• Mandatory governance training (e.g. annual fraud & corruption);• Periodic declarations of breaches of compliance obligations

(personal/department level), conflicts of interest and gifts & benefits;• Acknowledging that departments/teams are complying with their

legislative compliance obligations;• Refreshing staff knowledge of whistleblower provisions and the

importance of speaking up;• Requesting feedback on ethical and cultural health of the organisation

through the use of surveys.

4. Health checking your ethical culture

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• The use of cultural health check surveys can be a useful management tool to determine employee engagement.

• Care should be taken in the way the survey is designed and whether it should be mandatory:

• Non-mandatory surveys tend to garner a low level or participation and those that participate tend to bias the results;

• Biased responses are usually given by staff with an axe to grind;• Low response rates to do provide a complete overview of an

organisation’s compliance culture; and• Mandatory surveys tend to improve participation rates (from a third to two-

thirds typically – but will never get 100%).• Survey information can combined with other feedback channels to

inform management of the highlights, lowlights and areas for improvement in organisational culture.


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• In 2015 the Sydney Harbour Foreshore Authority (PNSW) conducted a non-mandatory corruption survey;

• Ten questions were asked about the Authority corruption prevention framework;

• The key highlights were:• 49% of respondents had not attended anti-corruption training ;• 80% of respondents had read the Code of Conduct ;• 57% of respondents were not aware of the Public Interest Disclosure Policy ;• 97% of respondents considered the corruption prevention framework was complete

;• All respondents recognised examples of corrupt behaviour in scenario testing ;• Over 70% of respondents knew how to report corrupt behavior ;• Over 80% of respondents believed the Authority to report corruption to ICAC and

has appropriate disciplinary processes in place ; and• 70% of respondents believed the Authority would protect whistleblowers .


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• The survey results were reviewed by the Authority's Fraud Control Working Group, and agreed that a more concerted effort is needed to motivate staff to attend face-to-face training when it is offered, and the refresher eLearning training and survey be made compulsory each year.

• Greater effort to increase the awareness of the Code of Conduct, Conflicts of Interest, Public Interest Disclosure, Gifts & Benefits and Whistleblower protection.


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5. The need for integrity champions

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Source: Integration Training. Real Organization Chart. www.integrationtraining.co.uk

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• Organisational structure is a key element of control

• Impacts on information flow, decision location and accountability

• Opportunities arise from weaknesses in structural arrangements and a failure to understand the impact of the organisational design


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5. The need for integrity championsHierarchical Organisational StructureChief Executive Officer

Divisional Levels

Hierarchical Organisational StructureTeam Leader

Functional TeamsManagers Managers

Staff Staff

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Key controls to combat corruption within an organisation are policies which set the standard to be complied with and internal audit that ensures the standards were met.Both controls are discrete inasmuch as they exist at set time points.

The best compliance system in the world will fail without inspired leadership to drive employee engagement.An integrity champion is not a person but a skill set that leads by example, that “walks the talk”, whose decision making is guided by visible ethical and cultural behaviour


t=0 t=1

Anti-corruption policies

Internal Audit

• Five key champion characteristics or leadership skills:• Respect - Taking correction as a compliment. Giving 100 percent, 100

percent of the time. Listening with your ears and eyes.

Spanish Proverb: “We have two ears and one mouth, therefore we listen twice as much as we speak!”.

• Responsibility - Focusing attention and effort. Recovering quickly from mistakes. Staying positive no matter what.

• Integrity – As a leader your “yes” means yes and your “no” means no, consistency and predictability.

• Servant leadership – Promoting the interests of your team at every opportunity.

• Team camaraderie – Esprit d’corps. Reacting correctly even when others in the team do not. Support those that need it and those that want it.


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1. Recognising corruption is essential in the detection and managing of organisational risk:• Situational perspective• Psychological perspective• Absence of suitable guardians• Available opportunities

2. Culture is essential in developing ethical standards and staff integrity:• Cultural change is long-term• How to leverage culture to promote ethical standards and personal

integrity3. The “gold-standard” anti-corruption compliance framework has a better

chance of engaging employees when it is championed by visible and respected leaders across the organsiation:• Walk the talk• Know the standards and incorporate them into daily decision making• Encourage staff to incorporate ethical decision making in daily life

6. Top Three Takeaways

2016 - iqpc - the key to raising awareness and comprehension

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