Developing effective Corruption Prevention Policy: CHECKLIST

Tempe, March 29, 2017

Technical Staff

This document is a part of The AACI series of anti-corruption resources. The contents of this document constitute an integral part of the CACM Review textbook that would be available in countries where the CACM will only be offered by exam. 

Definition: A fraud and corruption prevention policy is a formal, written statement recording the entity's attitude and response to fraud and corruption. 

The policy could be standalone or included within the code of ethics. It should state clearly what the organization expects from its employees regarding fraud and corruption. 

A successful policy is one that:

1. Embeds in it the “Perception of Detection” AND
2. Implements a swift and consistent action when fraud or corruption is suspected or detected

Corruption Prevention Policy Benefits

The following is a "partial" list:

1. Absence of confusion to what is fraud, corruption or misappropriation of assets
2. Clear consequences for engaging in fraud and corruption
3. Commitment of board of directors and management - the entity is not an easy target to fraud and corruption

Corruption Prevention Policy Benefits

Elements of Corruption Prevention Policy 

Pre-requites for Effective Corruption Prevention Strategies, Plans, and Programs

You may download the entire document when visiting The AACI Anti-Corruption Library: Free Resource

Part 1(D): Fraud and Corruption Detection - Government Entities

What is the resilience of an entity in preventing, deterring, and detecting fraud and corruption?

Tempe, March 29, 2017
Technical Staff

Proper Anti-Corruption Competencies of Senior Civil Servants, Elected Public Officials, and Employees

The prevalence of adequate anti-corruption education in government entities always determines to a large degree the effectiveness of internal control and corruption prevention policy in detecting fraud and corruption.

Each governmental and / or management level requires a different set of anti-corruption competencies. For example, the internal department head anti-corruption skills differ from those of the deputy minister of a government entity. Each employee should possess the necessary anti-corruption knowledge and skills to meet what management expects her to do in detecting fraud and corruption.

Surprisingly, central banks all over the world require their local banks to ensure that their employees obtain annual anti-money laundering training. Though money laundering is a very tiny and small part of corruption, central banks do not require their local banks to (a) have a corruption prevention policy, and (b) ensure that their employees obtain anti-corruption training annually. There are too many banks that do not have a corruption prevention policy, especially in developing countries.

This is extremely odd as financial institutions are regarded more regulated and disciplined than other business sectors. This is a red flag that regulatory agencies should note due to its severe consequences on not only detecting fraud and corruption but also on financing terrorism.

The AACI believes that the adequacy of anti-corruption competencies of senior public officials and those charged with governance should be quantitatively measured annually. Last year, we launched a certification program called Organizations Anti-Corruption Certification Program to support organizations of all types to quantify their anti-corruption competencies, among other things.

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Part 1(C): Fraud and Corruption Deterrence - Government Entities

What is the resilience of an entity in preventing, deterring, and detecting fraud and corruption?

Tempe, March 29, 2017

Technical Staff

Increase the Likelihood of Detecting Corrupt Acts

A government entity would enhance its deterrence of corruption when it increases the likelihood of detecting corrupt or fraudulent acts. The perpetrator would usually weigh the benefits and costs of his fraudulent act. Under normal psychological and emotional conditions, he will rationally decide whether to commit fraud or corruption. The more the perpetrator believes that his fraudulent act would be uncovered, the less likely he will commit fraud or corruption. For example, when a cashier knows that the internal audit department personnel are competent and usually carry out surprise physical cash count of money in his custody, he will not take a high risk of being caught “borrowing” cash from his custody. 

Systems of internal control that are well designed and implemented effectively would support the organization’s deterrence of corruption. Although internal control systems have their inherent limitations, a whistle-blowing policy would create a significant deterrence impact on the perpetrator’s perception of the likelihood of being detected. Prevailing honesty and integrity within the government entity’s culture also support its deterrence of corruption.

However, the efficacy of deterrence of corruption depends on the following two fundamental deterrence principles:

(a)   Severity of punishment, and
(b)   Certainty of punishment

Severity of punishment

Punishment is severe when it deters a perpetrator from committing a fraudulent or corrupt act. However, one cannot conclude that whenever there is corruption, its associated punishment is not severe. A severity of punishment would be measured by the degree to which a perpetrator understands the risks (costs) of corruption and the extent to which it deters him from committing fraud.

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British banks handled vast sums of laundered Russian money

In an exclusive investigative report published by the Guardian on Monday, March 20,2017, the Guardian uncovers an ongoing exceptional international money laundering scheme. Mr. L. Burke Files, President of The AACI, was the only cited expert whom the Guardian showed details of the transfers. 

"Documents seen by the Guardian show that at least $20bn appears to have been moved out of Russia during a four-year period between 2010 and 2014. The true figure could be $80bn, detectives believe.......The Global Laundromat banking records were obtained by the Organized Crime and Corruption Reporting Project (OCCRP) and Novaya Gazeta from sources who wish to remain anonymous. OCCRP shared the data with the Guardian and media partners in 32 countries.

The documents include details of about 70,000 banking transactions, including 1,920 that went through UK banks and 373 via US banks."

"The Guardian showed details of the transfers to L Burke Files, an international financial investigator. He said compliance checks at many western banks were desultory, and often little more than “box ticking”.

“Typically the compliance and investigations department is treated like an unwanted step-child. The directors of a bank see compliance as an expense without any return. The compliance professionals are underpaid, underskilled and receive little or no effective training in spotting criminal patterns.”

Files added: “Most of the transactions I’m seeing here would have required substantial enhanced due diligence. It isn’t just individual transactions. It’s the repeated pattern.”

Click here to read the complete news report.

The following are integral parts of the Guardian exclusive investigative report:

The Global Laundromat: how did it work and who benefited?

How 'dirty money' from Russia flooded into the UK – and where it went 

Russian money and the 'Global Laundromat': what banks said

Part 1(B): Fraud and Corruption Prevention - Government Entities

What is the resilience of an entity in preventing, deterring, and detecting fraud and corruption?

Tempe, February 27, 2017

Technical Staff

As we stated in Part 1(A): Fraud and Corruption Prevention - Government Entities, there is not a cut-and-dry measurement for fraud and corruption risks. These risks should be addressed at the following levels: internally and externally.

The following questions and their respective answers would constitute a foundation for identifying and assessing the fraud and corruption risks attributed to the external environment of a government entity. The process should include the following factors:

• Constituents and customers
• Suppliers and creditors
• Public expectations of services
• State audit
• Local laws, rules, and regulations
• Society social norms, values, and culture
• Prevailing corruption or perceived corruption in the community / country

Constituents and Customers

1. Does the government entity have a documented current system to receive, process, and respond timely and appropriately to constituents and customers' suspected corruption complaints?
2. Does the government entity interact with its constituents and customers via social media platforms? If yes, does the government entity monitor its constituents and customers' perception of its integrity and ethical practices?

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Part 1(A): Fraud and Corruption Prevention - Government Entities

What is the resilience of an entity in preventing, deterring, and detecting fraud and corruption?

Tempe, February 27, 2017
Technical Staff

Where to Start?

A smart start at an entity to prevent fraud and corruption would be seeking an answer to the following question:

What is the current status of fraud and corruption in the government entity?

The answer to this question could be qualitative or quantitative. Qualitative responses, for example, could be very low, low, medium, medium-high, high, and catastrophic! Quantitative answers could be a point on a numeric or percentage scale.

This is what we call fraud and corruption risk identification, or sometimes we call it fraud and corruption risk mapping. Fraud and corruption risk is a business risk. Because it is a business risk, it should be embedded in the organization’s strategy. Needless to say that neither this risk nor the strategy is static: they are dynamic.

Fraud and Corruption Risks in a Government Entity

There is not a cut-and-dry measurement for fraud and corruption risks. These risks should be addressed at the following levels: internally and externally.

The following questions and their respective answers would constitute a foundation for identifying and assessing the fraud and corruption risks attributed to the internal environment of the government entity.

Are the elected public officials financially literate?

Is there an orientation program for senior officials and newly elected public officials

Is there an effective internal audit function?

Should circumstances warrant, does the government entity have effective and competent functions similar to those applied in its industry?

Does the government entity have effective compliance function?

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Anti-Corruption Resources: Arabic Language

Supporting our partners, advocates, and constituents in the Middle East and Africa, we made available for public selected important Arabic anti-corruption resources documents. One may view or download one or more document. One may also share the link to the entire folder or selected documents. 

As part of our ongoing efforts to fulfill our mission, we will continue to update our resources in the Arabic language. Though these papers are not currently hosted at our Website, they are official ones, copyrighted and protected under the applicable US relevant laws.

Please feel free to copy or use any part of any of these documents as long as you correctly reference our copyrights to what you use. 

Click here:  المعهد الأمريكي لمكافحة الفساد - مصادرباللغة العربية