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Callous attitude exposes companies to fraud

New Zealand has enjoyed the Number 1 spot since 2008 as a country with a strong reputation for clean government, based on Corruption Perception Index (CPI) surveyed by Transparency International (TI).

The Index, which ranks the public sector in 176 countries, has been quoted extensively by our Government and senior officials as a hallmark of high standards of integrity and conduct within our Public Service.

I note that this Survey does not include the private sector, and caution that perception is not always the truth.

Though this accolade gives us a feel-good factor, let us explore the local scene.

Since 2005, more than 50 finance companies have gone bust, leaving billions of dollars owed to retail investors.

Fraud exists

In 2011, Auditor General Lyn Provost commented that despite a generally ‘clean’ image, fraud is a fact of business life in New Zealand.

According to former Serious Fraud Office (SFO) Chief Executive Adam Feely, corruption is on the rise and the country has changed since the global financial crises.

His office investigated several fraud complaints last year.

He said that most companies ignore risks and leave internal audits to uncover less than 2% of this fraud. The thinking is that it is the responsibility of the board (of directors), to discover fraud, not that of auditors.

SFO found that only 44% of the NZX 50 companies have rules prohibiting bribery.

This compares poorly against Australia (57%), US (69%) and UK (72%).

Mr Feely said that most companies have been smug because of CPI ranking.

Many countries, including US (US Foreign Corrupt Practices Act) and UK (UK Bribery Act) have legislated on corruption and bribery with extraterritorial effects.

New Zealand companies that do business in America or Britain risk legal action if they are found to have participated in any corrupt activity in third countries.

While New Zealand has laws against corruption (Crimes Act and the Serious Fraud Act), it is yet to enact extraterritorial legislation. TI is reportedly pushing for similar legislation.

Capital & Merchant Finance Founder-Directors Wayne Douglas and Neal Nicolls were jailed for 7.5 years, the longest sentence given to finance company directors.

Compare this with Bernard Madoff, who was recently sentenced in the US for 150 years on proven charges of securities and financial fraud.

No complacency

While the results of CPI are certainly pleasing, there is no room for complacency.

As Ms Provost warned, “trends overseas tell us that patterns of fraud are changing. We would be naive to think that we are immune from the pressures that affect other countries and economies similar to ours. On-going vigilance is particularly important in the current global economic climate, which increases the risk of fraud as many people struggle to make ends meet.”

There are already some signs of that pressure emerging, with public servants being held accountable in the courts for engaging in corrupt practices.

Welfare fraud

Individual transparency has also come under scrutiny.

Last month, the Government announced that the Social Development Ministry and Inland Revenue Department had found more than 3000 welfare cheats in the last six months. The cheats had received a total of $33.7 million.

This was the result of a law change which enabled the two departments to exchange information.

There are 20,000 more cases still under investigation.

There is therefore no room for complacency, just relying on the comfort of TI ratings.

If we have so many problems being Number 1, I hate to imagine our position if we are at Number 100!

Vino Ramayah is Executive Chairman of Medtech Global Limited and many other companies with offices in New Zealand, Australia, US and India. He was the Guest Speaker at the Indian Newslink Sir Anand Satyanand Lecture held at Stamford Plaza Hotel on July 29, 2013. Other excerpts from his Lecture appeared in our August 1 and 15 issues.

Photo :

1. Vino Ramayah with Lady Susan Satyanand at the Indian Newslink Sir Anand Satyanand Lecture held on July 29, 2013

2. Reena Ramayah with Sujata Pandey, wife of Indian High Commissioner

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