What about corruption in corporate deals?

What about corruption in corporate deals?

Around the time allegations poured thick and fast at A Raja for selling spectrum cheap to a horde of telecom companies, Ratan Tata created quite a stir at Dehra Dun when he alleged that he was asked to pay a bribe of Rs 15 crore to a minister some years ago when he wanted to set up an airline. In short, corruption thrives in India. The Licence Raj may have been dismantled but there is still a lot of clout that ministers and bureaucrats wield — and there’s a price attached to it. What is perhaps not reported in the media is the corruption that happens when corporations deal with each other. Contracts are handed out, orders are placed, purchases are made, and money often changes hands here as well. In the past, most promoters kept the “purchase” function with themselves — either a family member or a confidante. Why? The reason is obvious. Punitive tax rates, combined with low shareholding, meant there was not much money to be made legally. The real rewards, though in black, came from kickbacks. Little, it seems, has changed. How deep does the rot run? In January 2008, PricewaterhouseCoopers (PwC) had come out with a report called Confronting Corruption. As many as 390 senior executives across the world were surveyed by the Economist Intelligence Unit for the report, and this was supplemented with in-depth interviews with 36 senior executives and anti-corruption experts from 14 countries. It was an eye-opener. Sixty-three per cent indicated that they had experienced some form of actual or attempted corruption; 39 per cent said they had lost a bid because of corrupt officials; 45 per cent said they have not entered a market or pursued an opportunity because of corruption risks; and 52 per cent believed their rivals bribe their way to business. Clearly, people were aware that unethical practices are not uncommon in the world of business. If it comes to light, any incident of corruption can blow a company’s reputation to smithereens. Still, corporations pay only lip service to curb such practices. The PwC report said while 80 per cent respondents said that they have some sort of an anti-corruption programme in place, only 22 per cent were confident of their effectiveness; less than half said these programmes are clearly communicated to all and rigorously enforced; and only 40 per cent said the current controls are effective at identifying high-risk business partners or suspect disbursements. This, mind you, was a global report. The situation in India, if the country’s score in the various corruption indices is anything to go by, could be far worse. KPMG, earlier this year, had come out with the India Fraud Survey 2010. It spoke to CEOs, CFOs, heads of audit and compliance, fraud risk managers and other senior managers across industry verticals. “The mistrust of employees towards their senior management is unmistakable,” it concluded. “Despite this, control mechanisms are not in place in most organisations, and hence the need for risk-mitigating strategies is unquestionable. It is time that India Inc stood up and ended its tolerance of unethical behaviour, bribery and corruption.” Seventy-five per cent of the respondents said that fraud in the corporate world is on the rise; 54 per cent said fraud is on the rise in their industry; and 45 per cent said fraud (actual or suspected) has risen in their organisation. Eighty-one per cent said fraud in financial statements is a huge issue; 63 per cent said the desire to meet or exceed market expectations is the main factor behind such frauds; and 62 per cent disagreed that strict action is taken when such a fraud comes to light. Prepare yourself for more alarming stuff: 41 per cent said they do not have in place a formal fraud-risk management framework; 60 per cent said usage of technology in detecting trends and anomalies in data is average to poor; and 58 per cent said data analytics are either not used or used partially. Some bits of the survey didn’t come as a surprise. Thus, the supply chain (procurement, distribution and revenue leakage) is the function most exposed to fraud, internal controls are weak, ethical values have eroded and line managers are reluctant to take action against perpetrators. This, in turn, encourages fraudsters. The link between the financial earnings of the company and the remuneration of the senior management has its own perils. Precious little is done to encourage and protect whistleblowers. And few companies have the forensic skills to detect frauds. Nothing shows it better than the Satyam fraud. Till Ramalinga Raju confessed to his monumental fraud in early 2009, nobody was aware that he had been cooking the books of the company for seven long years! The company had over 50,000 employees, topnotch people on its board of directors and high-profile auditors. Evidence that has been collected so far shows that apart from a handful of people nobody had a clue of what Raju was up to. There may have been some tightening of controls and screening of business partners, especially of clients by auditors, since the scam broke out, but there is nothing to suggest that corruption is on the decline. It is just a way of life in India.