COMPANIES need to adopt a risk-based approach to ethics in the wake of an increase in corruption and fraud due to the economic recession, forensic experts warn.
Schalk Engelbrecht, a manager in forensics at KPMG, said companies with good governance were companies that performed better. He was speaking at an audit committee forum roundtable hosted recently by KPMG and the Institute of Directors of Southern Africa.
He said the subject of ethics in a business environment was a "notoriously difficult" one to broach.
Some of the myths that had arisen about unethical corporate behaviour were based on the idea that it arose out of the actions of a few individuals.
Businesses usually did not realise ethical conduct could add value to their activities, and managing ethics was about changing an environment rather than weeding out or converting "bad apples", he said.
"Many commentators believe that the global financial crisis was not due to a failure of regulation, but rather to a failure of ethics. Therefore, to prevent corporate scandals, more and more emphasis is being placed on a values-driven approach, as in the King (code on corporate governance), rather than a robust regulatory or legislative approach, like the US Sarbanes-Oxley Act."
South African companies still tended to provide minimal information in reporting on their ethics and governance practices, according to a recent study issued by the University of Pretoria's Centre for Business and Professional Ethics.
The study found that the reporting trend was to cover only the most basic levels of corporate governance requirements and regulatory compliance. The recession had increased the pressure on employees and executives to commit fraud, it said.
Steven Powell, director of forensics at corporate law advisers Edward Nathan Sonnenbergs, said a lot of the corruption taking place within businesses was "off book".
He said that companies needed to be aware of "red flags" that could alert them and their auditors to potential financial irregularities.