New fraud report shows corporate chiefs’ business practices fuel graft

• Lunches and dinners are the form of gifts that Kenya’s business executives and heads of State corporations (32 per cent of those polled) would most probably give, compared to personal gifts (18 per cent) and cash (eight per cent).

More than half of Kenya top executives are ready to give bribes to retain or win new business — a situation that has distorted the competitive landscape, a survey by global consultancy Ernst & Young has revealed.

Lunches and dinners are the form of gifts that Kenya’s business executives and heads of State corporations (32 per cent of those polled) would most probably give, compared to personal gifts (18 per cent) and cash (eight per cent).

The survey dubbed, Growing Beyond: A Place for Integrity polled 1,758 executives in 43 countries around the world seeking to determine the business leaders’ perceptions on fraud and corruption.

While this was the first survey that involved Kenya, global trends show a deepening entrenchment of corruption as a means of growing business amid rising performance and revenue targets from the respective boards and shareholders.

“The majority of Kenyan executives interviewed feel that this kind of unethical behaviour (giving bribes) is in order to ensure their companies’ survival,” said Peter Kahi, a partner in charge of Fraud Investigation and Dispute Services at Ernst & Young, Kenya.

Follow-up interviews with the Kenyan executives showed that lunches and dinners were preferred because they were easy to account for, and could not necessarily raise questions from auditors.

Mr Kahi says that the escalation of bribery in business exposes the eventual customers to sub-standard products and services, while compromising the shareholder interests since the selected provider is not necessarily the cheapest.

“The pressure to meet revenue targets is undermining executives’ commitment to compliance with policies and the law,” read part of the report in which South Africa, Namibia and Nigeria were the other African countries surveyed.

More worrying for shareholders and boards of directors though is the number of finance directors who are willing to misstate their firm’s performance by either concealing fraud or padding the income statements.

The audit firm says that four per cent of the finance director would readily misstate the financial performance of companies they are working for, presenting a grave concern given the level of responsibility that they hold.

“This group is not large in absolute numbers but with their responsibility, they represent a huge risk to their business and boards,” it said.

A finding that could explain the dominance of the Chinese contractors in Kenya is that 82 per cent of top executives in the Asian giant believe that giving a bribe is a form of doing business.

“Giving bribes to win new deals is perhaps just another way of doing business amongst Chinese executives,” Mr Kahi said, adding that Brazil was also in the same league at 80 per cent.

Using bribes as a tool of growing business grew steadily in the last two years, a trend Ernst & Young terms as a “concerning escalation”.

While only nine per cent of those polled in 2010 thought it fit to give bribes to retain or win new business, 15 per cent would readily make cash payments to the procurement team of their prospective clients.