Corruption in Public Sector: Africa

This is an article I published in the Financial Gazitte newspaper on June 9, 2011; Harare-Zimbabwe. No one single word of the article was deleted or modified. This is the spirit that enveloped the The Third Anti Corruption International Conference of Harare that was held for the period June 13-15. It was opened by The Vice President of Zimbabwe.

What Should We Know About Corruption in the Public Sector?

Corruption is a form of fraud. It is a misuse of public office for private gains. The process of corruption usually has three parties involved: the public official who is entrusted by the public to carry our specific duties, the public who entrusted the public official, and citizen or a firm. Each of us knows for a fact that corruption has significant negative impacts on growth. Empirical studies have shown that corruption reduces incentives to invest, worsens the public infrastructures and services, decreases tax revenues and distorts the composition of government spending.

Corruption usually leads to bribery or extortion. Bribery is a situation when a person or entity gets something illegally that he/it is not entitled to. Extortion is a situation when a person or entity pays to get what he/it is entitled to. This distinction is very important especially for government officials who are responsible to set up strategies to fight corruption. 

What a government should do to fight corruption? What public should do to fight corruption? These are major questions I will address in details in the 3rd Forensic Conference held under the title “Fighting Fraud/Corruption and Money Laundering in Africa Using Investigative Skills".  It will be conducted in Harare at Rainbow Towers Hotel during the period June 13-15. The title of our paper will be “Preventing and Detecting Fraud/Corruption in the Public Sector." The answers to these questions are not simple but possible. The simple fact that no one can argue with is that the primary looser of corruption is the country and its citizens.

Among what a government can do are the following:

1. Establish and maintain effective anti fraud commission (AFC). The legal system should enable the AFC maintains its independence. Otherwise, the effectiveness of the AFC would be impaired.

2. Establish and maintain internal control systems that are designed specifically to deter, prevent, and detect corruption.

3. Establish a whistle blow system in each governmental entity. This is one of the most effective tools to discover corruption.

4. Promote fraud and corruption educational programs at the national level.

5. Engage universities in fighting corruption.

6. Provide a healthy environment to enable the civil society play its normal monitoring role regarding the performance of the public sector.

7. Enhance the legal system to provide a strong framework for all stakeholders.

8. Establish code of ethics in each governmental entity that promotes anti corruption practices.

9. Instill accountability for each post in the government. Transparency is a prerequisite to have accountability functions as intended.

10. Promote good governance

11. Obtain a financial position of the public official at the time she/he starts its business in the government and when she/he leaves her/his post.

12. Fight the conflicts of interest that  prevails in too many corrupted governments worldwide

Fighting corruption is not a program that will start at a point and ends at another. It is a national strategy that should start soon and does not stop at any time in the future. Corruption will never be eliminated. It will stay as there are societies alive. A government should not manage corruption, it should minimize it.

Corrupted people are not corrupted by nature. They were not born corrupted. There were motives and opportunities that helped them to pursue their corrupt acts. However, what motivates a fraudster in Mexico may not motivate a fraudster in Cameron. Therefore, Corruption should first be diagnosed professionally and properly, then policies should be established based on strategies to minimize this phenomenon.

The answer to the question I raised regarding what you should know about corruption in the public sector is it depends on where you stand in the process: public official, public, citizen or a firm. It is evident that if there is no citizen or a firm in the process, there will never be corruption. That is why the public (the government) should ensure that they listen to its citizens and its firms.

If you are a government official, do not say it is complex and cannot be solved; you should say why we have corruption and how we should fight it. Unless you face it seriously, you may end with a situation like Egypt or at the best like Greece.

Mohammed J. Masoud, CPA, CFE, CICA, MBA

Managing Director

Birzeit Consulting ME; European Middle East Advisory Center (EMAC)-London; UK

London-UK

Email: mmasoudcpa@bzconsult.com

Published on June 9, 2011 in the Financial Gazette newspaper-Harare as a part of the 3rd Forensic Conference for Africa “Fighting Fraud/Corruption and Money Laundering in Africa Using Investigative Skills". The title of the paper we presented was “Preventing and Detecting Fraud/Corruption in the Public Sector."

Fraud’s Worst Enemy: a Strong Code of Ethics

Fraud’s Worst Enemy: a Strong Code of Ethics

" three best practices of companies that know how to make ethical profits and fend off fraudsters:

1. Design and enforce a comprehensive fraud prevention policy and code of ethics. Ensure that every employee attends refresher training annually to stay abreast of new risks in a constantly changing business environment. Establish and publicize confidential reporting mechanisms.
2. Obtain unequivocal, ongoing C-suite and middle management support for the anti-fraud regime and ethics program.
3. When abuse or neglect is certain, fully enforce the ethics code and anti-fraud policies and procedures, regardless of the offender’s rank. Likewise, investigate allegations promptly and thoroughly, following up with enforcement when suspicions prove true. Bear in mind that the significance of minor offenses may be more symbolic than substantive. In such cases, when termination is inappropriate, alternatives such as temporary demotion or closer supervision can demonstrate management’s commitment to enforcement without depriving the organization of an otherwise valuable employee."
I think that each entity whether it is a private or public sector one should invest appropriately in instilling those ethics that help it avoid fraud and corruption and enhances its profit. It is always true that tone is at the top.

James R. Doty Says Audit Firms May Have to Be Rotated - NYTimes.com

James R. Doty Says Audit Firms May Have to Be Rotated - NYTimes.com

"Financial statements often include many estimates, and auditors now simply conclude whether an estimate is or is not reasonable. That has been a problem in valuing some securities that rarely trade, with the same audit firm approving widely varying estimates by different clients. One possibility may be for disclosures to be made on the range that the auditor deemed reasonable, and where the estimate fell within that range"

In my opinion, The problem is more complex than it seems. changing auditors is good but not enough. The issue is what are the motives and incentives that drives audit firms' negligent behavior, conflict of interest, and fraudulent acts.

Not enough being done to tackle fraud claims report | News | Inside Housing

Not enough being done to tackle fraud claims report | News | Inside Housing

According to the survey the public sector has adequate measures in place to tackle fraud after losses have been incurred, but identified areas where improvements to pre-emptive counter fraud activities could be made

The report discovered that fewer than 50 per cent of public sector bodies accurately estimated the cost of fraud, making the crime difficult to address.

Among central government organisations, it was also found that in more than half of them counter fraud staff do not receive any professional training.

This has caught out some providers with weaknesses in internal controls and the amounts lost can be significant. New scams are always appearing, it is therefore important that providers put systems in place to help safeguard themselves against the risk of fraud.

International Administration of CPA Examination

May 3, 2011

In March 2011, in conjunction with the AICPA and Prometric, NASBA announced the opportunity for international administration of the Uniform CPA Examination to be offered in Japan, Bahrain, Kuwait, Lebanon and the United Arab Emirates.

The CPA Examination application process is basically the same for U.S. and international candidates. In order to qualify to take the CPA Examination outside the U.S., candidates will have to establish their eligibility through a State Board participating in the International CPA Examination Administration program. Click the following link for the list of participating State Boards.

Before applying to sit internationally, please read the Candidate Bulletin and the International Examination Informed Consent. Candidates should then visit the Jurisdiction Map in the CPA Exam section of the NASBA website for information about eligibility requirements and the examination application process for the jurisdiction in which they wish to apply. Prospective candidates must select the U.S. jurisdiction to which they will apply, contact the Board of Accountancy (or its designee) in that jurisdiction to obtain application materials, submit completed applications and required fees as instructed, and once deemed qualified, schedule the examination. After receiving the Notice to Schedule, you may then register to take the examination in an international location through the NASBA website.

Note: After the registration process is complete for each examination section, you will need to wait at least 24 hours before you schedule your appointment. Initially, the examination will be offered internationally during a one-month testing window per calendar year quarter.

Regardless of which Board of Accountancy has declared you eligible for the examination, in addition to paying any domestic testing fees, you must pay additional fees for each examination section you plan to take internationally. Those fees per examination section are:

AUD: $292.85
BEC: $314.90
FAR: $292.85
REG: $314.90

Certain jurisdictions have specific rules and requirements to sit for the Uniform CPA Examination, as well as qualifying for CPA licensure after passing the examination. Before applying in any jurisdiction to take the CPA Examination in an international location, be sure to read the jurisdiction's Information for Applicants on the website. It may also help to visit the Board of Accountancy’s website of the jurisdiction where you wish to apply. Further details about international administration of the examination can also be found on the international testing FAQ sheet that is available on the AICPA Uniform CPA Examination website.
For candidate convenience, NASBA has recently extended call center hours and created an international number. The hours of operation and contact phone numbers are as follows:

• Call 1-800-CPA-EXAM. Days and hours of operation: Monday – Thursday, 8 a.m. to 2 a.m., Eastern Time, and Friday, 8 a.m. to 6 p.m., Eastern Time (UTC -5).
• Call 1-855-CPA-GUAM or 671-300-7441 (international candidates). Days and hours of operation: Monday – Friday, 7 a.m. to 4 p.m., Japan Standard Time (UTC + 9).

The Fraud Triangle

Fighting Fraud / Corruption and Money Laundering in Africa

Tweedie Urges U.S. Acceptance of IFRS

WASHINGTON, D.C. (MARCH 10, 2011)

BY MICHAEL COHN

"International Accounting Standards Board chairman Sir David Tweedie made the case Thursday for U.S. businesses and the Securities and Exchange Commission to support International Financial Reporting Standards this year."

It is really odd for the US regulators to delay such a move towards the full adoption of the IFRS. I hope that the time will not come when it becomes too late.

Fraud and Corruption in Public Sector

While I am searching and preparing a literature review for a research paper about fraud and corruption in the public sector that will be presented in an international conference this coming summer, I came across several issues that I thought interested parties does worth to read amid all this corruption and fraud crisis in the Middle East. I will only add a short comment at the end. 

"£38bn FRAUD costs the UK economy £38 billion a year, with more than half that suffered by the public sector, the National Fraud Authority reported last week. That is equivalent to £765 for every adult in the UK."

Source: The Sunday Times (London), Fraud rife in public sector, January 30, 2011 Sunday ,Edition 1; National Edition, SECTION: MONEY;FEATURES; Pg. 2

" It's only when the tide goes out that you learn who's been swimming naked." These widelyquoted words of Warren Buffett  .....There are three major factors in fraud crime: opportunity, motive and rationalisation. Opportunity is related to weaknesses in the company which allow fraud to happen and create an atmosphere where fraudsters believe they can remain undetected. Motive develops from financial pressure, whether personal or corporate: the need or desire to maintain a lifestyle, or pressure from managers to meet targets. Rationalisation is a fraudster's 'internal dialogue', which provides a self-justification for the actions.

An economic downturn causes the first and second factors, and therefore causes increased incidence, but also discovery, of fraud in these periods. Clearly there will be more financial pressure, with personal spending power reduced and companies finding it more difficult to achieve budgeted results. Company managers respond to these difficulties by imposing greater scrutiny on processes and controls, partly because they need to thoroughly explore the possible reasons for under-performance, and partly because, frankly, the reduction in normal activity gives them time to do so. The results are more fraud and more discovery of fraud."

Source: Hitesh Patel, Ian Dawson. Legal Week. London: Feb 5, 2009. pg. 34

"Washington-based Global Financial Integrity (GFI) announced in a report that the cost of illegal financial activities and government corruption such as corruption, tax evasion and crime in Egypt amounted to almost USD6 billion annually to a total of USD57.2 billion from 2000 to 2008, reported Gulf News. The personal fortune of the resigned President Hosni Mubarak and his family is estimated to be between USD40 billion and USD70 billion. Switzerland froze Mubarak's assets after he resigned and now the UK is pressured to trace and freeze Mubarak's assets in the UK. Former ministers and businessmen are being investigated by Egypt's public prosecution for robbing public wealth. Also, they are not allowed to leave Egypt and their accounts have been frozen. It is worth noting that privately owned wealth is estimated to be enough to cover USD32 billion of Egypt's foreign debt"

Source: "Corruption costs Egypt USD57.2b. " The Pak Banker  22  Feb. 2011,ABI/INFORM Global, ProQuest. Web.  5 Mar. 2011.

CPA Profile: Jennifer de Leon

Internal audit in the public sector: The quiet revolution

It used to be that internal auditing in the public sector served as a simple administrative procedure comprised mainly of checking accuracy of transactions, pre-payment verification and control, counting assets and reporting on past events to various types of management. But in recent times, a combination of forces has led to a quiet revolution in the profession. Governments moving toward higher levels of transparency must demonstrate accountability in the use of public money and efficiency in the delivery of services. Larger and more complex operations demand greater competency and professionalism from internal auditors to minimize and manage risk.

Hani Mounir Khoury
Deloitte, Middle East -The Middle East Point of View issue #4

Mohammed J. Masoud Becomes a Member of the ACFE Advisory Council

The Association of Certified Fraud Examiners (ACFE) has approved Mr. Masoud to serve as a member of the ACFE Advisory Council effectively from January 26, 2011. Birzeit Consulting ME congratulate Mr. Mohammed J. Masoud, CPA, CFE, CICA, MBA for this International professional role in the anti fraud profession and wish himll the best.

Do You Want to Pass the CPA Exam?

I think the answer is yes. The CPA exam will be conducted for the first time ever outside the US starting in August 2011. I am personally extremely happy for this news as so many excellent accounting students from the Middle East will be able to sit and pass this exam without any worries about the Visa of the US.

Therefore, Birzeit Consulting started a facebook page called CPA Review to provide the accounting students and the CPA candidates with the latest relevant information regarding the CPA exam.

I hope you will find all what you need there.

Mohammed Masoud CPA, CFE, CICA, MBA










       

internal control: risk-based principles...

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