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A recent ACCA report investigates how bribery affects SMEs and how accountants can help them to manage the risk. ACCA’s John Davies and Rosana Mirkovic report

This article was first published in the February 2014 International edition of Accounting and Business magazine.

Bribery is a long-standing feature of human society. It occurs in all countries, business sectors and walks of life. It is also almost everywhere a crime that affects the poor disproportionately and is not, as some might argue, a victimless crime. 

Bribery is also gaining attention in business life, where it is thought to be on the rise because of harsh global economic conditions. A 2013 survey by EY found that nearly half of workers questioned across Europe, the Middle East, India and Africa think that bribery and corruption are acceptable practices for businesses trying to survive an economic downturn. 

The issue has a special resonance for the accountancy profession, which stands for transparency in the financial management of enterprises. The financial statements that businesses produce for shareholders, regulators and others –invariably prepared by accountants – are expected to reflect fairly and accurately a business’s assets, liabilities and transactions over the period under review. 

Stiffer sanctions

Governments in several countries have acted to deter acts of bribery by introducing stricter legislation. This tighter legislation has been accompanied by a greater commitment on the part of regulatory authorities to impose heavy sanctions against those individuals and companies found guilty of bribery. In the biggest case of its kind so far, German engineering company Siemens was fined $800m by the US authorities. To the financial cost of being found guilty in such cases can be added the likely cost of long-term damage to the company’s reputation.

While much attention has been devoted to the problem of bribery and corruption in the public sector and among large corporates, ACCA has identified a lack of focus on small and medium-sized enterprises (SMEs), which make up the major part of the economy in all countries. As a result, we still have a very limited picture of how the issue affects SMEs. 

To improve awareness and understanding, in July 2013 ACCA surveyed its members across the world who work as accountants or general managers in SMEs or in public practice, and received 915 responses. Some of the headline findings certainly justified our interest. The majority (62%) of respondents believe SMEs are likely to encounter bribery and corruption in the course of their business dealings, and think the risk has grown in recent years. And one-third believe the global financial crisis has left businesses more prepared to misstate figures in their annual accounts.

Yet we also found that many SMEs are not taking the right steps to mitigate the risks of exposure to bribery and corruption. There may be good reason for this as fewer than half our respondents think that SMEs understand the legal definition of bribery and corruption in their jurisdiction. With many SMEs conducting business across borders in multiple legal environments, this uncertainty can have a big impact on how they can cope with the risk. There was most confidence in SMEs understanding the legal definition in Central and Eastern Europe, and least in the UK, where fewer than a quarter thought SMEs generally understand the legal definitions of bribery and corruption, despite the introduction of the Bribery Act in 2011, and significant efforts to raise awareness of its implications by policymakers.

The lack of legal certainty may account for so many respondents (44%) saying they are not convinced that the risk of sanctions deters SMEs from doing business with some sectors or countries, while one-third believe it is not a deterrent at all. 

And this brings us to one of the most interesting of all the survey findings: SMEs support a legal framework that applies the same standards to all organisations and want no truck with modified anti-bribery legislation for SMEs. Coupled with the finding that more than three-quarters of respondents believe high-profile prosecutions would be most effective in helping SMEs to reduce their exposure to bribery and corruption risk, it shows that a strong legal framework, visibly enforced, is viewed as a priority by SMEs in the interests of a corruption-free business environment that works for businesses of all sizes.

Advice needed

This leads us to some important conclusions. Despite recognising that bribery poses great challenges to them, many businesses in the SME sector feel vulnerable and in need of advice on protecting their interests. There is a role here for accountants in public practice to advise their clients on how to manage bribery risk. The report offers some broad guidance to SMEs (and practising accountants) on how they can put in place compliance programmes at minimal cost. 

The clear majority of accountants working in the SME sector accept there is a sound business case for adopting policies and practices designed to combat bribery. A business that is committed to the adoption and implementation of anti-bribery policies and practices – and can demonstrate it has done so – is better placed to do business with those large companies and public-sector bodies that are obliged to follow such policies and practices throughout their supply chains.

Respondents overall feel that SMEs should not be subjected to more lenient expectations on this issue than larger businesses. That said, the report makes the point that the controls adopted by smaller businesses to combat bribery need not be as all-encompassing and expensive as those adopted by larger businesses, and should aim to be proportionate to the risks that the business actually faces.

The full restoration of trust and confidence in the business sector can be achieved only when stakeholders believe that business is being conducted fairly and transparently. By adopting a values-based approach, businesses can help themselves – and, indirectly, help to achieve the wider goal of enhancing confidence in the business sector as a whole. Accountants, who have twin responsibilities to give best advice to their employers or clients and an obligation to act in the public interest, have a major part to play in this process. 

John Davies is ACCA’s head of technical and Rosana Mirkovic is ACCA’s head of SME policy

Last updated: 6 May 2014