January 6, 2020
By: Les Dobie, Head of Counter Fraud Training, CIPFA
Fraud and financial crime will always exist. Where there’s money, there are also people working to exploit the financial system for their personal gain – and the public sector is no exception. Although there is still work to be done, western governments have established a relatively sound position in combatting and deterring widespread corruption, bribery and fraud. Look elsewhere, however, and severe problems in the public sector are more apparent. Financial crime in the public sphere impacts the lives of millions globally, and it’s a problem that’s extremely complex to solve. At CIPFA, we think training and educational programs are a significant part of the solution.
Regardless of country, location or community, governments are rightly expected to manage public money prudently – this helps maintain the social contract between the state and the people. In reality, many national governments are either failing or struggling to uphold this contract with their citizens. According to Transparency International’s Global Corruption Barometer, 57% of the world population thinks their government is doing badly in the fight against corruption. Yemen, Madagascar and Ukraine are just a few countries with the highest perceived levels of corruption amongst their populations. Further, the United Nations estimates that every year globally, $3.6 trillion is paid in bribes or acquired by other corrupt means.
It’s no surprise then that in countries where fraud and financial crime is widespread, citizens often have to pay bribes for public services – an estimated 1 in 4 individuals, globally. While this may be the experience at the individual level, it is often reflective of larger activity within governments and private sector organizations. It’s worth noting that those who are involved in fraud and financial crime may not always be ‘bad people’ in the conventional sense. In the case of fraud, a lack of knowledge, entrenched custom and practice or an absence of necessary governance frameworks coupled with a ‘laissez faire’ culture may result in people unknowingly misusing or misreporting funds. The picture can be so complicated, and the line between sharp practice and criminal conduct is not always clear to the uninitiated.
So what does the global anti-financial crime stage look like? Bribery, corruption, embezzlement and money laundering all fall within international compliance frameworks. The United Nations Convention Against Corruption (UNCAC) and the Financial Action Task Force (FATF) are two primary, international frameworks that set standards to combat fraud and financial crime. Although other anti-corruption conventions are in place, such as the OECD’s Anti-Bribery Convention, most are generally restricted to designated regions or narrow manifestations of corruption.
The UN Convention covers preventative measures, enforcement, international cooperation, asset recovery and information sharing, and is the first legally binding anti-corruption standard. Signatories of the UNCAC are responsible for the development and implementation of adequate anti-corruption policies that are well-aligned with the convention. The vast majority of UN member countries have either accepted, ratified or are actively moving towards the adoption of the UNCAC.
Separately, the FATF is a G7-established, albeit informal, bloc of industrialised countries, tasked with monitoring anti-money laundering (AML) trends, law enforcement activities and legislation at the national and international level. FATF has issued its primary policies, known as the ‘Forty Recommendations on Money Laundering’ and the ‘IX Special Recommendations on Terrorist Financing’ to guide governments on AML policy. Of equal importance is the FATF blacklist of ‘Non-Cooperative Countries or Territories’ that fail to meet (either willingly or unwillingly) the necessary FATF requirements. Although the FATF cannot impose sanctions on ‘non-cooperative’ countries, the blacklist serves as serious motivation for adherence to FATF recommendations to avoid financial pressure from the international community.
However, sound policies at the national level don’t automatically translate to sound practices at the organizational level. Although these two frameworks provide much-needed guidance for anti-fraud and financial crime policy around the world, in many countries, professionals working in public finance aren’t adequately qualified to carry out their public duties on a day-to-day basis in an effective manner. That’s where education and training comes in. A ground-level understanding of fraud and financial crime and what it looks like in a practical sense is often what’s lacking most. This is a common trend we see across the organizations we work with.
CIPFA’s International Certificate in Financial Crime Investigation is one way we’re working to strengthen the global public sector’s anti-financial crime work. The certificate is one of our core educational offerings and is designed to provide public finance professionals with the skills and knowledge to professionally investigate financial crimes. The educational programme was developed by CIPFA after years successfully training and advising auditors, inspectors, investigators and senior managers through our anti-fraud and corruption training and consultancy services. For practitioners who wish to extend their knowledge to encompass the totality of the fraud and financial crime spectrum, CIPFA has developed the International Diploma in Financial Crime Management which includes a module on the prevention, detection and risk assessment of fraud and financial crime and how it can be effectively managed within an organization.
Our Financial Crime Management programmes have been successfully administered in the UAE, Pakistan, Sri Lanka, Malta and Indonesia, to mention a few. In Sri Lanka, the certificate programme was aimed at capacity building within Sri Lanka’s National Audit Office, formerly the Auditor General’s Department. Unlike some NAOs or State Audit Institutions, the Sri Lankan NAO has the authority to bring criminal prosecutions against individuals who commit fraud and financial crimes against public sector organizations. In this particular case, NAO staff in Sri Lanka had no prior accredited corruption or financial crime investigations training.
In order to tackle fraud and financial crime effectively, individuals, governments and organizations must have the necessary knowledge, systems and processes in place to deal with delinquent behaviour. An understanding of financial investigation techniques is integral to a strong anti-financial crime strategy, alongside that of effective governance structures, prevention protocols and enforcement action. Investigative skills like effective planning, methods of evidence gathering, investigative interviewing of both witnesses and suspects, recovering proceeds of financial crime across borders and investigative report writing are all included in CIPFA’s International Certificate programme and are critical to improving the situation at the individual level. The International Diploma expands this knowledge to include upstream anti-financial crime knowledge of prevention, detection and risk assessment, the aim being to stop the problem at source. The idea is that when these skills expand throughout a public workforce, the national and international landscape exponentially shifts for the better.
The current international frameworks have certainly been beneficial in the fight against public sector financial crime and corruption, but there are very clear gaps between policy and criminal activity. CIPFA continues to place importance on training and educational programmes as a means to close those gaps, regardless of location or country, by creating a common standard of skills and knowledge, a lingua-franca if you like, among practitioners in the field. It’s crucial that wherever fraud and financial crime manifests itself, it is met by a consistent and professional response.
Completely eradicating financial criminal activity in the international public sector is an impossible goal and not one we seek to achieve. Our goal is to provide counter fraud professionals with the right tools and knowledge to empower governments and individuals alike to manage the threat in a proportionate and cost-effective manner, balancing the rights of individuals against the protection of precious public funds from the unscrupulous. One of the pillars of responsible government is to have transparent and accountable public bodies – and it’s up to the global accounting community to help make that happen.