Slow SA growth forces managers to take more risks

Johannesburg - Slower economic growth than expected in South Africa is a challenge which puts managers under pressure to create new revenue opportunities and to expand into higher risk markets, according to 77% of SA respondents in the latest EY Europe, Middle East, India and Africa (Emeia) Fraud Survey.

South African businesses must have their eyes wide open in their pursuit of these high-risk growth strategies,” according to David Stulb, global leader of EY’s Fraud Investigation & Dispute Services (Fids) practice.

“The risks of fraud, bribery and corruption are real. Businesses are facing complex restrictions in the way they conduct business with evolving sanctions regimes and new risks, such as cybercrime, having the potential to significantly disrupt operations," cautioned Stulb.

"This is particularly crucial in South Africa, where the pressure is on to succeed."

The survey indicates that challenges - including geopolitical instability, commodity and currency price volatility, as well as economic sanctions, are pushing companies and their executives toward high-risk behaviour.

There is greater pressure on businesses to grow revenues together with market volatility and this is creating increased risk in expansion opportunities.

The survey polled 3 800 employees of large businesses in 38 countries and found that nearly 33% of Emeia respondents report that management is under increased pressure to expand into higher risk markets. Of those respondents, 32% of South Africans surveyed hold this view.

"In these rapid-growth markets, 61% of respondents regard corruption in companies as widespread, while 37% of Emeia respondents report that companies often overstate their financial performance," according to EY.

The risk of fraud and corruption is not limited to rapid-growth markets as 26% of senior management Emeia respondents said they have heard of early recognition of revenue occurring in their organisation in the past year – the type of behaviour that has been at the centre of numerous high-profile frauds.

READ: SA economy 'halfway back to treading water'

Fraud and corruption options

While senior management may be tempted to take risks to accelerate short-term growth, the survey shows a clear correlation in companies that are growing and are taking compliance seriously.

Respondents throughout Emeia whose business has experienced revenue growth in the last two years are more likely to rate their company’s ethical standards as “very good”, more likely to have or know about their company’s anti-bribery or anti-corruption policy and more likely to see operations across markets meeting the same ethical standards.

“Our survey shows that 20% of employees believe anti-corruption policies will hold them back from growing their business. Our view is this shouldn’t be the case, said Stulb.

"To grow in a high-risk market you need the right controls and processes. You need your teams to be trained to make the right choice when asked to pay a bribe or ‘cook the books’, and you need the right tools to monitor activity so these risks can be addressed in a timely manner.”

The survey shows that many businesses operating in the Emeia still do not have even the basic building blocks in place for effective compliance.

South Africa bucks this trend, however, with 85% of South African respondents having an anti-bribery or anti-corruption policy and code of conduct in place. Twenty-seven percent of them have not had anti-bribery or anti-corruption training, and only 13% say their company does not have a whistle-blowing hotline.

The results also confirm that overall, financial services organisations have responded to the intense pressure that they have been under from regulators, customers and others. There are still gaps, however, as there are respondents in the financial services sector who also report that their business does not have an anti-bribery or anti-corruption policy or a whistle-blowing hotline.

Also, there are senior managers who are perceived as showing little attention to anti-money laundering rules, unauthorised trading or misselling issues.

Leadership commitment

“Businesses remain under intense pressure to grow and, in this market, operating in the grey area between legal and illegal may appear to some as a viable option," said Stulb.

"But our survey results show that this is a false choice, and that growth can be achieved while appropriately managing the risks of fraud and corruption. Effective compliance is not a barrier to growth; it is a requirement for sustained success.”


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