The Cost Of Corruption

In Malaysia, the Auditor-General’s annual report speaks volumes about the prevalence of corruption; fraud, “leakages,” misuse of funds and abuse of authority. Yet these shameful, unhealthy practices persist, to the extent that they can actually be quantified – and the amount is staggeringly in the billions!

Of course, the Auditor-General’s report references the situation of the public sector, but the cost of corruption is one of the major risks that the private sector has to deal with as well. Organisations which tolerate fraud, ignore instances of poor corporate governance or sanction kickbacks by their silence are as culpable as the individuals that actually perpetrate them. Companies should declare that they will not tolerate fraud. Internally, there should be clear, concise policy concerning fraudulent practices and the penalties incurred, communicated to employees from their first day on the job, and emphasised at regular intervals.

In fact, businesses should make such policies a key element of business management and corporate integrity, and ensure that it is enforced at all times, at all levels of the organisation. Anti-graft policies and codes of corporate conduct should be communicated to suppliers as well, so that any attempt to influence bids for procurement or preferential treatment can be nipped in the bud. But why go to such lengths when businesses, out of prudent management, inevitably make provision for losses, and have probably already established a risk appetite that has taken into account, unsavoury as it may be, the cost of corruption?

Because there will never be “just one” case of corruption. Corruption inevitably snowballs, proliferating exponentially and getting more damaging with each incident. No organisation will want to reach a point where corruption has permeated the structure to the extent that it becomes the norm. Corruption will eventually kill the company that condones it, not just financially, but reputation-wise. We see evidence of this every day: firms that lose their investors’ trust and stakeholders’ support, and become unsustainable because they were seen to condone corruption. These enterprises are irredeemably damaged, and their destruction affects both honest and dishonest employees.

Bad news travels fast. It doesn’t take very long for information to circulate, and even staff who may not have been in the same department where the fraud took place, will find themselves tainted by the allegations. Worse still, the company will be perceived as less than honest by practically everyone else. Although this may smack of hypocrisy – as corruption is rarely limited to just one enterprise in any industry – perceptions of this sort have a very damaging knock-on effect which can result in long-term damage to the firm.

But what actually constitutes corruption? Unfortunately, in Malaysia, the general perception is that corruption has been condoned for decades, that businesses cannot function if they do not grease palms or fail to factor kickbacks into their expense accounts. While there are cases of blatant corruption, with large sums being siphoned off, and contracts being awarded in instances of obvious conflict of interest, corruption is less likely to be traced when the perpetrators do not see themselves as doing anything overtly corrupt. One example is the awarding of contracts not to the most capable contractor or the lowest tender, but to a party known to the person with the authority to award it.

It should be noted that there is sometimes no intention of committing fraud, and certain practices are not seen as corrupt within certain cultures. Indeed, what some cultures perceive as cronyism or nepotism, others may see as just “helping” a friend or relative to “get a bit of business.” Of course, this begs the question of how to tell the difference, but there are rules and regulations that can be applied, boxes that can be ticked, and checks and balances that can be instituted to ensure that boundaries are not crossed. Politicians, for instance, should not be on Boards; companies which are bidding or tendering should not have any connections whatsoever with Board members or management of the company calling for bids or tenders.

As concrete measures of combatting corruption, organisations should cultivate the ability of exercising independent judgement among staff, and curbing corrupt thinking from the outset through the appropriate training and a clearly written code of conduct. The correct tone should be set at the top, and cascade downwards because at the end of the day, it is human behaviour, not rule books, that will drive the firm. Management should be aware of weaknesses in systems and processes, and staff should be encouraged to whistleblow without fearing retaliation because ultimately, being corruption-free hinges on integrity, transparency and good corporate governance.

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