In a difficult market, the pressure to make more out of less is ever-increasing, but studies show the stakes of pushing your brokers too hard could be higher than you think.
In a difficult market, the pressure to make more out of less is ever-increasing, but studies show the stakes of pushing your brokers too hard could be higher than you think.
Research released by Ernst & Young found companies under pressure to bring in results are resorting to fraud and corruption to make the numbers add up – and the financial services sector is one of the most at risk.
In a survey of over 3,000 board members, managers and teams in 36 countries the study discovered a whopping 57% believed that bribery and corruption are “widespread” in their country, and nearly half were aware of irregular financial reporting in their own business.
“Executives and their teams are under increased personal pressure to produce growth in extremely challenging conditions,” said the report.
“Unethical conduct — including fraud, bribery and corruption — in response to this pressure is not just a hypothetical risk.”
While most respondents were open to admitting that corruption is common throughout the country, many remained in denial that is was occurring in their sector, found the report.
“The reality, however, is more likely to be that if it is happening in your country, it is happening in your sector. And if it is happening in your sector, it may well be happening in your business.”
And the financial services sector is one of the worst offenders, said the report.
“In the financial services sector – where regulatory action has been intense — 9% of respondents had seen revenues recorded before they should have been; 7% were aware of underreporting of costs; and 9% knew of customers being sold unnecessary products to meet short-term sales targets.
“Historically, this particular issue has hit financial services companies hard, with a number of institutions paying compensation to customers for mis-selling products and services, as well as incurring hefty regulatory fines.”
ASIC spokesperson Daniel Wright recently expressed concerns that fraud is a “continuing” trend within the mortgage broking industry, highlighting instances where brokers have engaged in fraud relating to information provided in loan applications.
In 2012 fraud cost Australia more than $300m – and according to Ernst & Young, the situation is unlikely to improve any time soon.
Compliance programs help to mitigate risks, said the report, but the issue lies in their communication.
Nearly 70% of senior employees felt that their anti-corruption policies had been communicated strongly – but just 44% of other employees felt the same.
Compared to 2011 results, the report also found that a lower number of employees found their company’s compliance program to be relevant to their work, and more than one in six felt that the program was actually harmful to their competitiveness.
“So employees falsely perceive there to be a choice: implement compliance policies to the letter and risk losing opportunities, or take the risk of non-compliance and keep a competitive edge.”
Traditional remuneration systems are likely to encourage this kind of behaviour, said the report, as “employees rarely get a pay rise or promotion simply for complying with policy ".
“In the context of widespread pay cuts, the temptation to achieve results through bribery and corruption is even greater."
So what can you do to discourage this kind of behaviour in your brokers? Ernst & Young identified five behaviours that managers successfully employed to keep their business and employees in line.
- They own the problem.
Boards and senior management acknowledge that the risk is real for them and their business.
- They deal with the issues.
Teams across businesses, functions, geographies and grades understand that the risks are relevant to them and their work.
- They communicate the risks and the benefits
The costs of fraud, bribery and corruption are understood at an individual level. Behavior is not only limited by controls, but is driven by a common culture.
- They focus effort.
Squeezing efficiencies out of shrinking resources is a necessity in today’s environment. Identifying specific risks and focusing resources on these is therefore increasingly important.
- They ask questions and demand answers.
Management is not afraid to ask difficult questions or turn over stones, knowing that what is hidden cannot be ignored.
"None of us can be in any doubt about the level of pressure on today’s businesses," said the report.
"All are operating in extremely challenging conditions, with instability across many markets, sluggish or minimal growth in others and an aggressive enforcement environment around the world.
"The message from our survey is this: businesses face significant risks and must be aware and take action to navigate these risks."
