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European fraud survey 2011: recovery, regulation and integrity - Taking action against fraud - EY - Global

European fraud survey 2011Taking action against fraud

How private equity helped Brightstar shine

Marcelo Claure knows how to grow a business fast. Just a year after its 1997 launch, his wireless communications company, Brightstar, was turning over US$70m. Under his leadership, it has grown to become a multibillion-dollar operation and one of the most admired entrepreneurial companies in the US.

Private equity has played an important role in Brightstar's growth, says Claure. In 2007, the company raised $283m from a private equity fund. "They have been wonderful investors and partners," says Claure. "They have a long-term investment horizon, contributing to the success of the business, and are highly valued advisors to me and my senior leadership team."

Claure says he was happy to welcome a new voice at the boardroom table. "But what I can say is select your investors wisely," he advises. "Ours are strategic partners vested in the long-term success of the company. That makes a big difference and ensures that our goals for the company are completely aligned."

And the arrival of private equity investors doesn't have to reduce the entrepreneur's influence. "You build a company presumably to grow and scale it," he says. "That requires investment which usually brings dilution, but that doesn't need to result in loss of control."

Make ethical behavior a priority and demonstrate commitment to achieving it.

Summary: Fraud, bribery and corruption continue to expose companies to heightened financial, regulatory and reputational risk. Give employees a reason to care more about integrity by linking it to their work and their career advancement within the organization.

Our survey indicates that the corporate response to fraud, bribery and corruption continues to face serious challenges:

  • Management is failing to set a strong tone at the top of many organizations and, in many cases, is prepared to do whatever it takes to succeed.
  • Persistently high numbers of employees are willing to behave unethically.
  • Companies are not doing enough to implement and communicate anti-fraud and anti-corruption measures.

These matters clearly expose companies to heightened financial, regulatory and reputational risk.

The necessary audit committee and board level management response

There are a number of ways in which companies can reinvigorate the push for integrity.

The leadership of the organization must:

  • Make ethical behavior a priority for the business and demonstrate its commitment to achieving this objective.
  • Conduct a fraud, bribery and corruption risk assessment and identify any gaps in current policies and procedures.
  • Where necessary, modify and develop policies and procedures and implement changes paying particular attention to training:
    • Be sure that training is truly tailored and relevant, reflecting the issues and day-to-day problems that their employees are likely to encounter and how to address them.
    • Take a risk-focused approach to who should be trained, on what, in which manner and how often.
    • Ensure that integrity is reflected in the appraisal systems of the business.

These are largely commonsense measures that give employees a reason to care more about integrity by linking it to their work and their career advancement within the organization.

The Compliance functions and Internal Audit

If Compliance and Internal Audit are to increase their ability to change corporate conduct, it is important that they are seen as value-adding functions. As such, they must go beyond a checklist approach to ensure that they enable businesses to make better decisions.

It may not be easy to embed the necessary changes to internal corporate culture required to mitigate the challenges posed by unethical conduct. Our survey has indicated that companies struggle to ensure that what they have in place on paper is actually reflected in the underlying behavior of their staff.

It is only through a concerted, risk-focused effort that targets areas of potential exposure that firms will be able to meet the expectations of regulators and, ultimately, their shareholders.

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