A local news story on a forensic audit which
uncovered a petty cash slip made out for R 5,000 and described as “bribe money”
for a municipality caused much outrage about the corrupt attitudes this
exposed. But is the tracking of this amount corrupt or just a practical way of
managing a very real issue?
What is
Bribery?
In its simplest form, bribery is giving someone
in a position of power something in order to change or influence their
behaviour to benefit you or your business or cause. Bribes can be anything from
cash to gifts to favours to extravagant entertainment; but not all of these are
necessarily bribes. What is considered a bribe differs from country to country
and from culture to culture.
Where is
the line?
Giving someone a gift to show appreciation or
respect may be construed as a bribe in one country where it is common practice
and even a tax deductible expense in another. In some cultures a cash bribe or “tip” to thank someone for helping you is tradition, gifts to show respect or
pleasure at working together is the norm, flying potential clients into your
country and putting them up in respectable hotels including meals and
entertainment for the duration of their stay is simply practical if they are in
the country purely to see your operations.
Entertaining clients or potential clients in an
exclusive box at the rugby – entertainment or bribe? If a business manager
hears how a competitor has been wining and dining a potential client and
decides to up the stakes by getting the potential client tickets to a Celine
Dion concert because the wife of said client is a huge fan; is that a bribe or
simply entertainment and friendly competition?
This goes even further when considering hiring
staff in other countries. It is common and smart business practice to hire
local people to manage your business operations if you start a new branch in a
foreign country. You hire them for their specialised knowledge and understanding
of their country and their laws and regulations; isn't part of what you chose
them for knowing how their local culture works with regards to doing business
efficiently? Ethical standards are culture specific and a person acting on your
behalf in a foreign country may not even realise that what they are doing is
considered illegal elsewhere.
A little
bit of history & reality
Until the mid 1990s bribery, particularly in the
case of foreign officials, was not only acceptable business practice, but a tax
deductable business expense. It was only in 1997 that 34 countries signed an
anti-bribery agreement with the Organization for Economic Cooperation and
Development (OECD). Although this convention came into force in 1999 and now
includes 40 signatories (34 OECD and 6 non-OECD countries), there are a large
number of countries; including those that have signed; that still do not
consider bribery in foreign countries illegal.
There are very few countries in the world where
it is possible to do business without making some form of government payment
and any business that wants to compete in these markets is aware of this. There
will always be somebody willing to remove or shift regulatory obstacles for a
price.
Why
bribery?
Laws alone cannot eliminate bribery since the
root of the activity is tied into the conditions and cultures of each
individual country. Where officials are paid poorly, where a few individuals
have the power to choose suppliers without having to justify their choices,
there will always be bribery.
Apart from the possibility that managers may not
be aware that what they are doing in incentivising certain bodies to gain
favour is illegal and bribery, there are also those who are faced with everyday
business pressures to perform and deliver and don’t see any other way to do so.
The new branch manager, who has been given the
responsibility and accountability for launching into a new market with tough
targets and the need to succeed, is faced with a choice of giving someone what
they ask for in order to reach the goals set or failure.
This is not to say the business owner is in
favour of bribery or encouraging it in any way, but you push your people to
deliver and ideally you want them to make the right decisions while getting the
job done, but how many people might see it as a lack of choice? Especially when
they are responsible for the jobs and livelihoods of others and you have sent
them to a country where bribery is nothing more than a basic cost of business
and competition.
The line between what is right and what is
necessary may very soon become blurred.
Accounting
for Bribery
Although the legalities have changed, the
realities have not. If bribery is a reality in your business because of where
you operate, surely as a business owner this is information you need to know?
From an accounting point of view, if amounts that
are some form of bribe are hidden in a multitude of other expenses; and usually
in a variety of different expenses depending on the branch or manager; as a
business owner you have a largely skewed overview of where your money is being
spent.
For example, if your new office has “donated” a
large sum of money to the local government party as this is the standard in
this country when joining their economy, but the manager knows that there is
nowhere that this expense actually fits; would you rather the manager adds it
to “International Travel” expense? And elsewhere, you have another branch that
has given the expected gift to the head of the new company you have won over as
a client, should this be added to the “Entertainment” expense?
What happens when you are reviewing expenses at
the end of the year and you see the cost of expenses has doubled in one branch,
but you have not secured new clients that equate to that expenditure; or that
suddenly your entertainment budget is off the charts in a branch in a small
town in Witwatersrand?
What happens when you are budgeting for your next
year; and not knowing what those expenses are actually covering you cut those
budgets, possibly losing major business without realising it, putting your
entire business at risk?
There is a reason we as accountants value
transparency so highly – it is necessary in order to make informed business
decisions on all levels.
The Dilemma
How do you plan or manage your business when you
have no idea where your money is being spent. Denying bribery exists by building
it into other costs means not knowing the actual costs of your company doing
business. Would you as a business owner rather have a clear line-item for
bribery or “New business expansion” which would allow you to make informed
decisions moving forward, or should your managers continue to hide these
amounts elsewhere?
I can already hear the furore of voices at the
implication that one would condone illegal activity such as bribery of
officials by adding a line-item to your books to account for it, but there is a
big difference between condoning the behaviour and accepting the reality of its
existence.
