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23 May 2012

EY: Managers are risking criminal prosecution in the drive for higher profits

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  • There is a worrying increase in the number of managers willing to pay a bribe in order to win business
  • The Czech Republic comes third in Europe as far as tolerating bribes is concerned
  • Czech managers underestimate the risks linked with fraud and corruption during acquisitions
  • Rewarding whistleblowers is no longer taboo – two thirds of Czech managers would welcome financial incentives for whistleblowers

According to the Ernst & Young global survey of attitudes to fraud and corruption, 15% of the senior executives of leading companies questioned would be willing to pay a bribe to win business. The figure is 13% higher in the Czech Republic. More than a third of respondents are convinced that corruption is widespread in their country. Czech managers are significantly more sceptical, with as many as 80% of respondents seeing corruption as widespread. However, there may be some self-delusion at play here, since only 12% concede that there is corruption in their own sector. The survey shows that top company bodies are not sufficiently prepared to confront the risks linked with fraud and corruption. Furthermore, those questioned do not believe the authorities are capable of seeing through prosecutions to the end, i.e. punishing the guilty party.

Though a global phenomenon, corruption is most widespread in rapid-growth markets. Bribes are most likely to be paid in Indonesia, Greece and China. In Europe, Greece has the dubious honour coming top, followed by Belgium and the Czech Republic. The CR is followed by Colombia, Poland and Ukraine.

The deliberate misreporting of financial statements is a significant risk in many countries. In Europe, the survey shows that this practice is most likely to take place in the Netherlands, Belgium and France, Czech managers claim that they would not knowingly cook the books under the pressure of financial indicators.

The prosecution of corruption in the CR

The Czech Republic takes an unedifying bronze as far as tolerance of bribes in Europe is concerned. However, Czech executives believe that the prosecution of corruption by the authorities is ineffective. In comparison with other countries the state has a poor track record in pursuing a case through to the point where sentences are handed out to guilty parties,” said Magdalena Souček, Country Managing Partner, Ernst & Young, Czech Republic. In this respect it is no surprise that the majority of Czech respondents are calling for stricter controls by the authorities in order to reduce the risk of fraud and corruption.

New challenges: management of the risks linked with business partners and acquisitions

Companies get into trouble by not detecting corrupt practices or fraud on the part of the seller, and this in turn puts them at risk of large fines and a reduction in the value of their investment,” explains Tomáš Kafka, Senior Manager, Fraud Investigation & Dispute Services, Ernst & Young.

Rewarding whistleblowers is no longer taboo

In terms of instruments for monitoring compliance with anti-corruption legislation, Czech respondents, like managers elsewhere in the world, largely rely on internal audit and advisory firms. However, significantly fewer whistleblowing systems are used in the Czech Republic than the global average. And yet the survey shows that more than two thirds of Czech managers would welcome legislation which introduced financial incentives for whistleblowers.

Ethical compromises of CFOs

The CFO plays a crucial role in the prevention of fraud and corruption. In the past they were less active in promoting internal company ethical values. Today they need to redouble their efforts. They need to ensure that they themselves are trained so as to increase their awareness of the risks while clearly demonstrating support for anti-corruption initiatives,” says Tomáš Kafka.

Source: Ernst & Young, Czech Republic

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