The earliest known examples of money – clay tokens used in Mesopotamia almost 10,000 years ago as evidence of a claim on stored goods – are often taken to mark humans’ first steps towards civilisation. But while the modern world revolves around money, a new report from ACCA makes the point that, just like any other tool, it can be used well or badly.
Bribery and corruption: The hidden social evil on your doorstep takes a close look at the impact of nefarious practices on businesses – especially the small and medium-sized enterprises (SMEs) that make up 90% of the world’s businesses – and emphasises that smaller companies are not immune from the risks of bribery and corruption.
The report builds on ACCA research that shows that the majority of SME owners, employees and advisers think that bribery and corruption have a negative impact on the business environment, and over half believe that SMEs are likely to encounter it.
Small companies lack the bargaining power to refuse demands for small bribes
The risk is that, while smaller companies may not generate the scale of income that would seem to make them susceptible to bribery, they also lack the bargaining power to refuse demands for small bribes.
More than half of those surveyed believe that bribery and corruption in their own sector is most likely to happen in contract negotiations or when dealing with public sector officials. Respondents (just over half of whom were ACCA members) are more concerned about the scope for bribery than was the case in the previous ACCA survey in 2019.
‘The sums may be smaller but the number of incidents is higher, for many reasons – and because of that, the direct impact on communities is far worse,’ states the report.
Vulnerabilities
In many countries, the informal economy outweighs the formal (tax-generating) economy by as much as four to one. Often the reason for operating informally is that entrepreneurs are unable or unwilling to pay the bribes required to secure a licence, win a contract or pass an official inspection. Every dollar, euro or yen spent on bribes is money taken out of profits that would otherwise be spent on supporting the local economy or fuelling the growth of the business.
The fact that SMEs often do not have the formal reporting lines and management structures of larger companies ‘can make it harder for people to recognise when things start going bad,’ says the report, ‘and, by the time it’s become obvious, it’s even harder to do anything about it’.
80% of SMEs would welcome advice from their accountants on the policies they need to have in place
The report adds that 77% of respondents feel that strong anti-bribery values and practices would increase customer confidence in SMEs, and 68% thought it would increase the likelihood of being able to trade with large businesses or public bodies (although 59% said such values could also cost a business trade or opportunities).
But SMEs often don’t know where to turn to ask for help, with 48% of respondents saying there is not sufficient guidance or support to help SMEs spot and deal with corruption and bribery. More than half did not think the appointment of an auditor would help reduce the corruption risk, although 80% added that SMEs would welcome advice from their accountants on the policies and practices they need to have in place.
A realistic prospect of prosecution for demanding small bribes will go a long way
Mitigating measures
International regulators are beginning to address the demand side of bribery with more stringent legislation and high-profile prosecutions, which will help smaller businesses, argues the report, by emphasising that a culture of bribery will not be tolerated.
A realistic prospect of prosecution for demanding smaller bribes, it adds, ‘will go a long way to discouraging them and helping everyone build a better society’. The report also calls for ‘short and accessible’ anti-bribery guidance specifically for SMEs.
Fixing the broken systems that facilitate bribery and corruption is about more than prosecutions – ‘it’s about education, cultures and systems,’ says the report. ‘We need to think about why officials are demanding money. In some cases it may just be because they can – but if their wages are too low then they may feel they’ve no alternative but to supplement their salary with small bribes. Addressing that will be part of a far larger agenda.’
It makes good financial sense, it suggests, for affected businesses to work with local authorities to put mechanisms in place to replace a system of bribes with a single direct payment to a central authority. Governments would be able use some of that additional revenue to make up for local officials’ lost bribe income by raising wages.
The report adds that electronic payment systems help to remove the scope for corruption – and the costs of bribes being paid by international freight and shipping companies may be more than the cost of e-payment systems.
‘It’s in everyone’s interests to ensure every business operates on a level playing field’
Play our part
Fragmented global supply chains put businesses around the world under increasing pressure by creating an incentive for them to cut corners or behave unethically. The fact that respondents to the survey seem more concerned about the scope for SMEs to encounter bribery and corruption than they were five years ago supports the view that the risk is increasing.
But the report ends on a positive note, pointing out that the pandemic emphasised the fundamental importance of human relationships and the role that small businesses play in communities. ‘It’s in everyone’s interests to put people before profits and ensure that every business, of every size, operates on a level playing field,’ it says.
‘We can and must foster an environment in which the harm done by bribery is recognised, and every support given to businesses of all sizes to counter it.’
