John was employed as a trainee accountant and reported to Patrick, the financial controller of ABC Company Ltd, which was planning to go public. Though Patrick and the directors were busy preparing the financial statements for the listing exercise, John noticed that they also found time for frequent lavish dinners and overseas golf trips with research analysts from some investment banks. In due course, the company received favourable reports from these analysts.
One day, John was asked to help in reconciling the records of certain business transactions and, when doing so, found that many of the financial documents were very similar. It appeared that some were even for identical transactions, but on different dates.
Feeling uneasy, John raised the matter with Patrick, only to be told that he should complete the task and that he could expect a promotion if he was loyal to the company. After the listing, Patrick then instructed John to adjust some management accounting data for the first annual report to make the company's prospects look rosier. This time, there was the promise of some share options in a subsidiary company which was being lined up for a separate listing. John was puzzled by what seemed to be going on. As a result, he decided to seek expert advice from the ICAC.
They explained that the company's senior management might be liable for conspiracy to defraud, if they had falsified sales and accounting records to meet the listing requirements. Also, both parties would have acted corruptly if the directors had offered bribes to the research analysts as a way of getting them to write favourable reports, which did not reflect the true situation.
According to Section 9 of the Prevention of Bribery Ordinance (PBO), an employee (the analysts in this case) commits an offence in accepting a bribe if he solicits or accepts an advantage as an inducement to, or reward for, doing any act in relation to his employer's affairs without the permission of his employer.
Any person who offers an advantage in these circumstances also commits an offence. It was assumed that the analysts did not have their employer's permission to accept advantages for writing favourable reports.
John learned that he might also be liable for taking part in criminal acts such as false accounting, particularly if he enjoyed personal gain by receiving share options or promotion. It was also professionally unethical for him, as a member of the accounting profession, to accept advantages for facilitating a fraudulent scheme.
Upon receiving John's report and after a thorough interview with him, the ICAC took action and investigated the company.
|Q&A on corporate governance and ethics|
|Q1 ||What should a junior employee do if confronted with requests to conspire in illegal activities and the offering of bribes?|
|A1 ||An employee should exercise vigilance and sound judgment when faced with ethical dilemmas. He or she should be aware of the dire consequences of engaging in dubious or illegal conduct. It is best to establish if the expected conduct complies with the law and to check the company's code of conduct on required standards of behaviour. When in doubt, seek advice from superiors or someone who can be trusted. Finally, an employee can report any malpractice or illegal conduct to the company's senior management, the compliance officer, or make a direct report to the relevant authorities. |
|Q2 ||What should companies do to ensure good corporate governance and best financial practices?|
|A2 ||a) For publicly listed companies in particular, there should be proper internal control systems to ensure the timely and accurate disclosure of financial and non-financial information. Independent audit procedures should be in place to ensure all regulatory requirements are met. |
b) Senior management should ensure there is a corporate code of conduct that clearly spells out the company's values. They should also provide corporate ethics training to make sure employees and business associates have no doubt about the required standards of ethical behaviour.
c) There should be a system for detecting illegal or unethical behaviour. When any wrongdoing is uncovered, the senior managers should take a close look at the root causes and do everything to prevent, detect and punish improper conduct.
|Q3 ||Why does the ICAC promote good governance and ethics?|
|A3 ||The law only stipulates the minimum standards. A corporate culture underpinned by integrity and probity is the best defence against corruption and other illegal activities. The ICAC believes that, with high ethical standards, people can more readily resist the temptation to act corruptly and make the right decisions when facing ethical dilemmas. The ICAC provides free advice and education on the prevention of corruption, so that both public and private organisations can strengthen their governance and internal controls. |
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Source : For enquiries about this article or ICAC service, please contact the Hong Kong Ethics Development Centre at (tel) 2587 9812, (fax) 2824 9766 or (e-mail address) firstname.lastname@example.org