Category Archives: Effective business

August 22, 2012 · 9:42 am

Guest post: Occupational fraud and the auditor’s role – a view from South Africa

Below is a thought-provoking guest post on auditors role in fighting fraud and corruption from Morne Pienaar, Internal Audit Manager at RSM Betty & Dickson in South Africa.

In South Africa it is nearly impossible to read the news without seeing headlines regularly highlighting incidences of fraud, nepotism and corruption.

These headlines speak accurately of a business environment where “tender fraud” is more common than not. This has deeply negative ramifications for a country that needs to establish itself as a destination for international businesses.

The majority of fraud and corruption in South Africa occurs around the award of government contracts. On a positive note, companies in the private sector are beginning to implement stronger risk management controls to safeguard themselves against corruption.

Even so, we as a business community face real challenges in changing our business culture and we believe auditors should play an increasing role in protecting our clients. The evidence is quite stark.

The Association of Certified Fraud Examiners recently released The 2012 Report to the Nations on Occupational Fraud and Abuse. The study gathered information from 94 countries worldwide to provide a global view of occupational fraud.

Some of the key findings on the impact of occupational fraud in the report are:

• The typical organisation loses 5% of its revenue to fraud each year. Applied to the estimated Gross World Product this translates to approximately USD 3.5 trillion;
• Nearly half of victim organisations do not recover their losses;
• Most occupational fraudsters are first time offenders with clean employment histories;
• Occupational fraud is a significant threat to small and medium enterprises.

We need to ask ourselves: as auditors, what are our responsibilities when it comes to the fight against fraud and corruption?

International Standard on Auditing 240 states that the primary responsibility for the prevention and detection of fraud rests with those charged with governance and management of the entity.

Even so, external auditors, and more so internal auditors, do play a central role in advising clients on prevention and detection of fraud, particularly by educating clients to appreciate the depth of risk within their operations, and we can advise on processes and procedures to reduce the risk of fraud.

In short, we believe it is vital that external and internal auditors communicate to clients the benefits of improving internal controls to reduce the risk of fraud.

There is naturally a greater possibility of fraud in instances where there are limited internal controls within a business. External audit, when not relying on internal controls, should still be aware of the increased risk and “red flags” and communicate to clients the possible consequence of the lack of controls or risk management within their organisations.

After all, the impact of business crime can include major financial loss, compliance and regulatory infringement and even criminal proceedings against management.

These scenarios are not acceptable, and as responsible auditors we should do all we can within our remit to ensure our clients are clearly warned of potential risks.

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Filed under Effective business, General, Guest Post, Risk

June 14, 2012 · 1:56 pm

Sustainable thinking: Is less productivity a good thing?

The New York Times featured a very interesting opinion-editorial by Tim Jackson, Professor of Sustainable Development at the University of Surrey.

He argues that the global quest for increased productivity in the workplace could result in putting more people out of work unless it is accompanied by matching growth.

He also suggests that the drive by corporate leaders to seek more and more productivity out of fewer people may have reached its limits in the current economic environment.

“If more is possible each passing year with each working hour, then either output has to increase or else there is less work to go round. Like it or not, we find ourselves hooked on growth,” says Professor Jackson.

“What then, should happen when, for some reason or another growth just isn’t to be had anymore? Maybe it’s a financial crisis. Or rising prices for resources like oil.”

He says that a solution may be to “loosen our grip on the relentless pursuit of productivity” and perhaps focus expansion in our economies towards sectors where increased service rather than productivity growth is the requirement for success.

He notes that “low productivity” sectors such as medicine, education and social work essentially exist to directly improve the quality of our lives. Making them more efficient is sometimes less desirable as it results in a reduction of service quality. “What sense does it make to ask teachers to teach ever bigger classes? Or doctors to treat more and more patients an hour,” he adds.

I am not sure I necessarily agree with Professor Jackson on refocusing the economy, but he makes a valuable point for any of us in a service industry. Efficiency is good, but it should not be at the sacrifice of service.

All businesses need to be productive. We all need to be efficient, organised and use effective systems to maintain our profitability. So where do we draw the line on increasing our productivity?

To be the best network, RSM has to be a great business. For us, being a great business is about being valued and respected by our clients. To achieve this we need to devote time to deliver real care and attention to each of our clients and their businesses. With increased productivity, this fine-tuned level of service, may arguably disappear.

Corporate leaders have to ask themselves where the drive for increased productivity is going to end. Will your company be loved by clients and staff? Is yours a sustainable business suitable for long-term shareholders?

The focus on productivity is critical for any business but we must approach this in a smarter way going forward. No longer can it be about simply working existing staff and resources harder. Let’s call it positive productivity.

For example, over the past couple of years we have put a real focus on positively motivating colleagues to increase cross-border activity, the result of which is a huge growth this year in our member firms connecting and working together on behalf of clients.

Our advertising campaign, built on research undertaken with our clients is based on this theme and RSM will continue to build our global connectivity and client service, and in doing so ensure productivity is our servant, not our master.

As Professor Jackson says, “what – aside from meaningless noise – would be gained by asking the New York Philharmonic to play Beethoven’s Ninth Symphony faster and faster each year?”

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Filed under Corporate Culture, Effective business, Great Ideas, Management, People, Sustainability

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May 24, 2012 · 2:11 pm

Austerity alone will not lead growth

European governments are facing a clamour of calls to ditch austerity measures and start spending.

The most rational of these calls are from those who wish to find a middle ground, understanding that is very hard to nurture economic growth without some form of stimulus.

It is very rare for an economy to simply change gear without a significant catalyst – be it the growth in a particular industry, political reform, or a significant innovation which a country is in a unique position to capitalise on. My own perspective is that, outside of pure chance, growth tends to follow intelligent strategic investment.

A fascinating comment piece in the Financial Times by Professors Marcus Miller and Robert Skidelsky of Warwick University questions the validity of austerity, and presents a very clear and concise case for the adoption of pragmatic growth measures as a solution to the current economic woes.

Devising ways to reduce debt without austerity is imperative. Assessing the current turmoil and drawing parallels with the 1930’s, they argue that sovereign debts must be managed in ways that do not destroy the economy or the political centre ground – as is the threat from a rigid austerity programme

According to Miller and Skidelsky, growth will only be achieved through increased project spending, restructuring of debts and shifting debt onto future generations. This basic foundation will create breathing space in which countries can climb out of the current morass.

I certainly appreciate that it is important that austerity measures be adopted at the early stages of a debt crisis – in the most recent crisis, it was important to show bond markets that tackling the debt mountain was a priority. With these initial measures in place (and as growth slides backwards and tax receipts fall), the question should be not if, but when, we begin adopting growth measures in earnest.

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August 19, 2011 · 9:39 am

Global business confidence – a local perspective from Hong Kong & China

The latest FT/Economist Global Business Barometer indicated a fall in confidence among businesses around the world. More than a third of respondents expect conditions to worsen. This survey data was captured before the US rating downgrade by S&P and the latest default worries in the Eurozone – and we can only guess what that confidence level would be like today. These surveys are at best an interesting insight into macro trend, rather than the more important matters of what is actually happening on the ground. Different countries have different challenges – and different insights.

I have just returned from a trip to China visiting RSM International’s offices in the region, and so I took the opportunity to ask the RSM team there and in Hong Kong about how they view the global economy and how they expect it to impact their markets. It is crucial in our business to understand these diverse pressures and ensure they are planned for.

Our teams in China and Hong Kong provided me with a range of opinions that on balance saw positivity for the future. However, they do have medium-term concerns about the impact of a US and European slowdown.  I wanted to share these insights and have summarised some of the key themes below:

On sustainability of China’s growth
China is an economic powerhouse fuelled on exports and companies involved in the export business to US and Europe will be affected by a slow down. An interesting insight from our RSM team in China is that this would be offset to a degree as China expands its internal consumption market, which will continue to fuel the economy.

On currency inflation & the property market
Currency inflation is another concern. Hong Kong dollars are pegged to US dollars thus the continuous devaluation of USD will lead to higher inflation in Hong Kong. This is likely to have an effect on the Hong Kong property market which is supported by the low interest rate regime. Last week, on a day when the stock market dipped 10% there was an unusually poor response to a public land auction. The property market in Hong Kong is a strong indicator for the optimism and confidence of Hong Kong consumers, businessmen and investors. Our team hope that the recent US announcement to maintain low interest rates over the next two years will help stabilise the property market, and provide that foundation of confidence on which the rest of the economy can base itself.

General business outlook
The slow recovery of major western economies will definitely slow down the export sector and transport sector in Hong Kong for the next twelve to eighteen months. The business outlook will slow down compared to the last eighteen months. Business will continue to grow but at a slower rate – and may be buffeted by economic changes impacting on political risk. There is always a concern of social unrest during times of economic uncertainty (UK being a recent case in point!) and changes in political leadership can also add to uncertainties to the global economy and business conditions.

These local perspectives may resonate with all of us in our own markets and I am glad that our common response is to get out there and create positives for our business. Throughout my travels I am consistently impressed by the measures taken by RSM member firms to get closer to their client’s business and understand more about the impact of economic and social change. There is no doubt that in this business to be truly effective we have to continue developing new products and services adapting quickly to our clients changing needs.

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August 12, 2011 · 2:34 pm

Facing up to business

Eighty per cent of my time is spent on the move. I am more often than not travelling between meetings with our member firms or potential members within RSM International, meeting their clients and key government or business leaders, and doing business with great people all over the world.

I often reflect on the different approaches to building professional relationships from one country and one sector to another, and how attitudes, cultures and what is considered best business decorum can vary so widely.

Despite these cultural differences, a common chord that strikes me, however, is the continued appetite across so many sectors and geographies for face to face contact.

In a world with an ever increasing array of communications options, you’d be forgiven for thinking that business people don’t still need to actually shake hands for global business to thrive.

But I’m a firm believer that they do.

Effective business relationships are built on partnership and trust. Talking on the telephone means you can hear someone. Connecting through a video conference facility means you can hear them and see them. But there’s something in sitting opposite a business partner, in sharing an environment together, that takes your relationship to places that telecommunications simply cannot reach.

Despite the technological advances that offer us viable and cheaper alternatives to flights, hotel stays and jetlag, the benefits of face to face business will in many instances far outweigh potential cost efficiencies.  That said, serial business travellers like myself have an important role to play in reducing our carbon footprints but a well planned schedule can significantly reduce time in the air, while still allowing those critical face to face meetings that forge the close and personal relationships which are vital to building strong and sustainable businesses.

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July 25, 2011 · 2:28 pm

Personality v qualification

The global economic crisis has left an unwelcome mark on the so-called “lost generation” of professionals. Graduate employment prospects in many affected countries are the bleakest they have ever been. That said, it is fast becoming clear that in this competitive job market you need more than a solid degree.

In conjunction with the European Business Awards, we recently surveyed 500 business leaders from 32 European countries. Their comments reflected that when hiring, they rate characteristics like confidence, enthusiasm and an entrepreneurial spirit far higher than a strong academic degree or business acumen. Over 80 percent of those surveyed said personality traits are more important than tangible and testable skills.

Many firms are moving away from traditional interviews and toward all-encompassing assessment days, where candidates are assessed not only on their expertise and knowledge but also, and just as importantly, on their personality fit within an organisation’s culture. For example, our UK member firm, RSM Tenon, reports that when hiring entry level trainees, they, of course, look for quality degrees, “but equally important is ambition, determination to succeed and commercial awareness.” Similarly, our Irish member firm, RSM Farrell Grant Sparks, notes that “while strong academic credentials are important, we look for motivated and ambitious graduates who can demonstrate an interest in accountancy, an ability to relate to clients, commercial awareness and a commitment to teamwork.”

With these criteria being used to inform hiring decisions, we can look forward to working with a generation of young professionals whose wider range of skills, rather than qualifications alone, will help boost business growth at a time when it is desperately needed.

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Filed under Effective business, HR, Management, People

March 23, 2011 · 11:35 am

Corporate Responsibility Steps Aside

The term ‘corporate sustainability’ is increasingly uttered in the business world, and is gradually taking over from ‘corporate responsibility’ – and ‘corporate social responsibility’ (CSR) before it – as the dominant paradigm of international corporate conduct.  In the wake of the global financial crisis, it is evident that increasing numbers of business leaders around the world are implementing corporate sustainability programmes. Defined, rather inhumanly, as the integration of economic, environmental, and social factors in enterprise decision-making, corporate sustainability is not just a tag-on, but an integral shift in how businesses are run. 

So how can we explain the increasing prevalence of corporate sustainability in the international business community? For one, growing regulatory pressures around the world are forcing investments in environmental protection and consumer safety. Rising commodity prices are also playing their part – making it more important to conserve resources. But perhaps the main driver is that businesses and corporate conduct are – rightly in my view – facing increasing public scrutiny, altering the way they report, and ultimately shifting the level of attention they pay to individual business ‘priorities’. In an uncertain world, they need to show strength and resilience, economically, environmentally, and socially. 

Adoption of corporate sustainability varies depending on company size, industry, geography and ownership structure. Adoption rates are unsurprisingly highest in industries that are heavily regulated and highly brand-sensitive. Right now, European companies are more ‘corporately sustainable’ than American companies, probably because of the stronger regulatory and stakeholder pressures in the European Union. In other regions, corporate sustainability programmes are expanding s (e.g. Africa, Middle East, Asia-Pacific, Latin America), reflecting the growing commitment of governmental agencies and non-governmental organisations to sustainable development. A number of multinational corporations headquartered in emerging markets such as Mexico, South Korea and Taiwan, now rank among the global leaders in sustainability. The growing sensitivity of shareholders to sustainability issues means implementation is greater among public than private companies, and although corporate sustainability take-up is quickening among SMEs, large, resource-rich companies are the more aggressive adopters. 

RSM’s Talking Points article on the topic points out that evidence to date suggests the implementation of corporate sustainability programmes positively correlates with financial performance. This shows us its value as a vehicle not only to instill (and be seen to be instilling) corporate responsibility, but moreover, if corporate sustainability is integrated into the ethos of a company, it can boost competitiveness and stimulate profitable growth. 

For a fuller analysis of corporate sustainability, see the following link to RSM Talking Points.

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