THERE HAS BEEN much talk about how rapid growth markets (RGMs) are expected to be the drivers of the global economy over the next decade. RGMs are countries that emerged from the 2008 recession with minimum damage and which project significant growth. They include a number of economies from the Asia Pacific region. While this is certainly cause for cautious optimism, it also raises the concern that the pressure for these markets to generate growth may also increase the risk of fraud, bribery, and corruption.

The Ernst & Young Asia Pacific Fraud Survey Report 2013, released just last Sept. 26, indicates that while many companies in the region have created, or are in the process of creating, policies and procedures to deal with fraud, bribery and corruption, there is often a disconnect in the local application of, and compliance with, these policies. The report surveyed top executives from Australia and New Zealand, China, Indonesia, Malaysia, Singapore, South Korea and Vietnam. While the Philippines was not included in the survey, there are many important lessons that local executives can glean from the report. It complements government’s current anti-corruption stance and a similar drive in the private sector for more transparency and integrity in dealing with government.

Here are some of the key perceptions presented in the recent fraud survey report:

Analysts are beginning to see a slowdown in Asia Pacific economies. Companies are starting to face budget restrictions and are struggling to meet revenue targets, which may result in questionable practices. There is also increasing scrutiny and tighter regulations from regional and global anti-bribery/anti-corruption (ABAC) regulators, which means additional regulatory burdens for companies. In general, there are three key areas of concern:

• Control systems are still weak in many Asia Pacific countries. Companies face significant risks as internal controls and compliance programs are not implemented as thoroughly as they should be. What is more worrying is that only 40% of the respondents indicate that their companies have internal ABAC policies, and of these companies with ABAC policies, about 48% of survey respondents even say that their policies, while sound in principle, do not work in practice, especially if companies are compelled to work in line with local business cultures that may conflict with global ABAC compliance policies.

• Since companies are under pressure to show positive results despite slower growth market conditions, company leaders may take shortcuts to meet targets. Nineteen percent of respondents reveal that bribery and corruption practices have even increased due to tougher economic conditions and increased competition. For example, some companies may be tempted to misstate their financial statements, such as by bringing forward revenue recognition or reducing depreciation costs.

• There is a perception that fraudulent practices are rising. Many respondents perceive that bribery and corruption are widespread in their home countries, particularly in RGMs. This in turn increases the risk of financial and reputational losses for companies should they be found out. It is important to note, though, that bribery does not always take the form of cash -- some countries still see gift-giving and entertainment to win business as a common practice. Read more