Fight against corruption – are SMEs on board?

accapr —  21 November 2013 — Leave a comment

Rosana Mirkovic

By Rosana Mirkovic, head of SME policy, ACCA

In times of economic turbulence, issues such as business ethics, transparency and sustainability tend to slip down the policy agenda. We tend to forget that we need a business and economic environment that works for everyone.

After many years of reviewing the various pieces of legislation relating to anti-bribery laws, the Bribery Act was introduced in 2011, bringing some unprecedented changes to the legal business environment, such as making it a corporate offence to fail to prevent bribery, make facilitative payments, or bribing a foreign public official abroad.

While much concern was raised about how the new legal framework may affect SMEs, we have very little evidence that shows us whether it has had any impact in the way small businesses conduct business. Some concerns (see here, here and here) have been expressed recently that it is preventing businesses from pursuing international opportunities, and more broadly, that SMEs are left confused and concerned when it comes to compliance with the UK Bribery Act.

But there might be more to consider here, and some of the focus needs to return to the impact of bribery and corruption on business – SMEs especially – where evidence on its impact on the sector, both in the UK and internationally, remains scarce. What we can safely assume is that when bribery and corruption is rife, SMEs pay out much higher percentages of their annual revenues in bribes and additional payments than large companies do. And it would also be safe to assume that with fewer resources, smaller client basis and tighter profit margins, SMEs are especially vulnerable in any marketplace where corruption exists.

Combating bribery in the SME sector polled ACCA’s UK membership to revisit original research conducted in 2007. And there are clear insights emerging that show how the sector is responding. According to ACCA members who advise small firms, the effects of the Bribery Act has not reduced the incentive for SMEs to trade internationally, and respondents were pretty divided on whether it has added to their costs of doing business. Therefore, some of the immediate assumptions are not supported by our survey.

What we do see however is that almost one in five of accountants believe that businesses have been more willing to mis-state financial statements to cover-up for corruption and fraudulent activity since the onset of the financial crisis and only less than one third believe that SMEs are not likely to face any risk of bribery and corruption in the course of business dealings. Other surveys also show that not only is bribery an issue in the UK but that it is on the increase – TI’s Global Corruption Monitor reveals that 65 per cent of people in the UK believe corruption has increased in the last two years.

Therefore focusing on combating bribery and corruption must remain the focus in the policy sphere, and SMEs should stand to gain from any successful measures that go on to create a less corrupt business environment. And of course, while any anti-bribery laws should be proportionate and easily applied to the SME sector (in line with the better regulation agenda that  ACCA has campaigned for over many years) the focus must remain on the harm that corruption poses, in business and public life, and how we can eradicate it.

Despite some recent noises on the disproportionate impact of the 2010 Bribery Act on the SME sector and Government’s plans to create a more relaxed framework for SMEs in response to it, just over half of our survey respondents do not support a modified anti-bribery and corruption legislation for SMEs, along with 71% who believe that high profile prosecutions would have most effect when it comes to combating bribery and corruption – a sure sign that SMEs want a level playing, and ultimately corruption free, environment.

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