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| Business |
| Corporate fraud worsens in Malawi |
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by
Frank Phiri, 05 May 2006
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06:14:32
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A survey by audit and business advisory firm KPMG has ranked Malawi as the second most fraudulent country in Africa after Swaziland.
The Fraud and Misconduct Survey, conducted last year, indicates that out of the 13 countries sampled, Malawi scored 86 percent after Swaziland’s 88 percent.
The score represents the respondents’ view of fraud as a major problem in private and public sector.
Botswana came out with the lowest score of 50 percent.
Nigeria and Kenya perceived by many as some of Africa’s most corrupt nations—ranked third and fifth respectively on the fraud ladder.
For Malawi, KPMG cites poor internal controls, collusion between employees, collusion with third parties and management’s overriding of internal controls as major causes of fraud.
Poor internal controls and collusion by employees had the highest score of 63 percent each, followed by collusion with third parties at 50 percent and the rest at 25 percent each.
Other contributing factors to fraud were poor or non-existent corporate ethics policy and poor hiring practices, says the report.
It says 71 percent of the respondents indicated that they expected fraud to increase while 29 percent said it would decrease in future.
“They cited economic pressure, weakening of society’s values, sophisticated criminals and lack of adequate penalties and enforcement as the major reasons for the expected increase in fraud,” reads the findings in part.
On sources of fraud, employees but excluding their management scored the highest score at 88 percent followed by service providers and customers at 38 percent and suppliers at 25 percent.
Surprisingly, management was not considered as a source of fraud with a score of zero percent.
But reacting to the survey, independent fraud examiner Anthony Mukumbwa said management could not be exonerated as a source and cause of fraud.
“If internal controls are not working, it is not usually a result of auditors not doing their job. It is because management does nothing to address problems diagnosed by the auditors,” he said.
Mukumbwa, who is also Managing Director of Corporate Governance Centre (CGC), said the KPMG survey reflects badly on the auditing industry.
But he noted that the findings should provide basis for soul-searching on whether or not auditors are given adequate resources and moral support to operate efficiently.
KPMG Malawi Managing Partner Lamion Gama urged both auditors and management to go an extra mile to curb fraud.
“Both management and auditors need to exert extra effort to inculcate a control culture to deal with the most sophisticated of frauds,” he said.
Gama said inappropriate implementation of procedures and controls, together with lack of appreciation of fraud risk management prevailing in corporations in least developed countries, was a major contributor to fraud escalation.
KPMG says the 2005 survey—fourth in the series—attracted 386 organisations in the private sector and government across Africa, which represents a response rate of 28 percent. |
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