Category: Accounting Profession Issues and Trends

Corruption: Rising to the Challenge

May 1999

Corruption has pervaded all sectors of our society. It may be more prevalent or more obvious in some countries than others. But in today's business environment, the implications of corruption at a local level reach far beyond national boundaries. Corruption has become a major global concern.

The impact of corruption on our society cannot be overstated. It increases the risks and costs of business, damages investor confidence, hampers economic development, and reduces country credit ratings. It brings the integrity of professions and of business into question. It deprives government and regulators of credibility and weakens the forces of law and order. In such a scenario, public morale inevitably suffers and social hardship - particularly in developing and emerging economies - can be the inevitable result.

Everyone has a moral duty to fight corruption. But no one can wage this battle alone. Governments must commit themselves to taking the first step in introducing a solid legislative and regulatory framework proscribing corrupt acts, dealing firmly with all who commit them, and protecting those who "blow the whistle" from the dangers of retaliatory action.

What is corruption? Bribery, fraud, illegal payments, money laundering, smuggling - all these come to mind as obvious examples. But corruption does not always involve money: it can present itself in the guise of special favors or influence. In today's complex and rapidly changing environment, the potential variations of corruption are as many as there are criminal minds to devise them. An all-purpose rulebook is inconceivable: the fight against corruption must take the broadest possible approach if it is to have real impact.

Ultimate responsibility for discouraging and preventing corruption, whether within the business world or in the public sector, rests with management. By introducing proper systems of corporate governance and "setting the tone at the top," management can significantly reduce the opportunities for malpractice.
But accountants have a key role in society's efforts to reduce corruption. First, as professionals with a duty to protect the public interest, they are bound by rigorous codes of professional and personal ethics calling for the highest levels of integrity and objectivity. Second, their key strategic positions within an enterprise or organisation - whether in an internal position or as an external auditor or adviser - mean that they very often have access to highly privileged and confidential information.

National and international standards of practice already alert members of the accountancy profession, whether or not in public practice, to the possibility of fraud or other irregularities and require them to report any such findings to internal management. But what should the accountant do if management fails to take appropriate action to remedy the situation? In theory, the accountant could take matters further by reporting the misdeed to external authorities. But is it fair to expect the accountant to expose himself or herself to the potential repercussions of such action: job insecurity or loss, professional victimisation, personal danger, threats to family or other third parties? Until such time as appropriate legal infrastructures have been put in place to protect the "whistle-blower" and to raise expectations of responsible action by other professions or sectors of society, is it realistic or reasonable to place this burden on members of the accountancy profession?

Until these and other issues are brought into the open and fully addressed, corruption will continue to flourish. In recognition of the need for action, the International Federation of Accountants (IFAC) has taken the lead in publishing a discussion paper to stimulate debate on the role of the accountancy profession - and indeed of other professions and sectors of society - in taking up the global fight against corruption. The paper, entitled The Accountancy Profession and the Fight against Corruption, urges national accountancy bodies around the world to discuss the issues and to work with other professions, business and commerce, government officials, and regulators in their country in finding a way forward. With IFAC's encouragement and support, accountancy bodies will embark on a publicity and educational campaign to ensure that corruption becomes a matter of general public concern. At the same time, IFAC's leaders will work with the World Bank, the International Monetary Fund, the OECD, the United Nations and the World Trade Organisation to explore ways of promoting intergovernmental cooperation in this area. Cooperation with organisations such as Transparency International and the Financial Action Task Force will ensure that the key role of the accountancy profession in combating global corruption is fully exploited.

The elimination of corruption is an ambitious target. Only with a dramatic increase in public awareness will it be possible to begin the fight. IFAC is committed to finding a way forward and to ensuring that the accountancy profession, both at institutional and individual levels, plays its part in the campaign to create a culture in which corruption cannot survive.

"The Accountancy Profession and the Fight against Corruption" is available on IFAC's web site at www.ifac.org or by telephoning IFAC's secretariat on +1 212 286 9344.