What the new false accounting offences mean for your business

Article

What the new false accounting offences mean for your business

Forensic Foresight: July 2016

You may be aware of new false accounting offences that were introduced earlier this year, but do you know how this change affects your organisation? This article summarises the changes and provides practical steps you can take to address these changes, including how Deloitte can assist.

False accounting offences – do your controls add up?

With the Australian government strengthening its stance on anti-bribery and corruption through the introduction of new false accounting offences, are you sure that your controls add up? Gaps in your bribery and corruption prevention, detection and response measures will likely hurt more than just your bottom line; your reputation is at stake.

What are the changes?

Note: Deloitte Forensic staff are not lawyers and the summary below should not be relied upon as legal advice.

Two new offences were introduced on 1 March 2016 that make it an offence under the Criminal Code1 to either intentionally or recklessly falsify accounting documents. Accounting documents are broadly defined as any account, record or document required or made for an accounting purpose, or any financial record (e.g. receipts and invoices), register, or financial report required under the Corporations Act2.

As consistent with existing legislation, these new offences apply where the conduct constituting the offence occurs partly or wholly in Australia. Where the conduct occurs wholly outside of Australia, the offences apply, if at the time of the alleged offence, the person was an Australian citizen, a resident of Australia or a body corporate incorporated by or under a law of the Commonwealth or of a State or Territory.

Why have they been introduced?

The new offences are a direct response to the Organisation for Economic Co-operation and Development’s (OECD) 2012 evaluation of Australia’s compliance with Article 8 of the OECD Convention, where it was found that the maximum penalties under Australian legislation for false accounting by legal persons (including companies) were not “effective, proportionate and dissuasive3 .

Prior to the introduction of these new offences, Australia had relied upon the maximum penalties (and associated books and records style offences) set out in the Corporations Act4 and other relevant state and territory legislation. The introduction of the false accounting provisions assist in better aligning Australia with other global foreign bribery regulation and enforcement (particularly the United States’ FCPA5), and help satisfy Australia’s requirements under the OECD Convention.

What does it mean for me and my organisation?

Historically there has been a low level of enforcement of false accounting offences in Australia, which has been highly criticised6. However, we often see that with increased law reform comes increased monitoring and scrutiny of organisational activities from the relevant authorities. Further, where law reform introduces an offence that is easier to prove than existing bribery offences, as with books and records style offences, the level of enforcement increases.  

If we take the United States as an example, the FCPA principally prohibits foreign bribery and corruption, but also contains accounting provisions. Broadly, these accounting provisions require corporations to maintain accurate books and records and have adequate internal accounting controls. Since 2012, all published SEC FCPA settlements and prosecutions have either involved breaches of the books and records and/or the false records provisions, while less than 40% of cases have involved breaches of anti-bribery provisions.

These new offences are also accompanied by substantial penalties for individuals (up to $1.8 million and 10 years imprisonment) and corporations (up to the greater of $18 million, three times the value of the benefit, and 10% of annual turnover). However, 60% of organisations surveyed in Deloitte’s 2015 bribery and corruption survey see reputational damage as the key downside posed by domestic corruption7. While reputation is one of the largest costs, also consider the impact of a bribery and corruption related incident on:

  • Staff morale and the ability to retain top talent
  • The bottom line, which will be potentially impacted by investigation, litigation and remediation costs
  • Efficiency of staff, particularly management in having to assist in the response effort.

What can I do?

Given we are seeing an increasing number of organisations operating in jurisdictions with known or perceived high levels of corruption8, increased law reform and greater domestic and international co-operation, if you’ve not done so already, now is the time to assess your controls and processes to determine whether they are adequate to manage the bribery and corruption risk your organisation faces.

Some quick wins include:

1. Undertaking a risk assessment to identify the key corruption risks your organisation faces

2. Reviewing your existing framework and identify any gaps in respect of the key risks identified and the controls and processes currently in place

  • Are your controls and processes implemented and operating effectively
  • Do they mitigate all key risks within risk appetite
  • Do they incorporate red-flags for identifying potential breaches of these new accounting offences?

3. Conducting an awareness survey, across your organisation or at targeted groups, to understand the effectiveness of your programme

  • Is your organisational culture aligned with your policies
  • Do your staff know what to do and who to speak to when confronted with a potential bribery or corruption scenario
  • Are management aware of their obligations and do they set the tone from the top?

The value of an anti-bribery and corruption programme is not limited to being an essential tool to prevent and manage corruption risk. We’ve also seen its value as a defence in relation to potential enforcement actions, mitigating penalties, and minimising the consequent damage to reputation through negative publicity.

How can you help?

Deloitte is able to assist you with enhancing your prevention, detection and response measures to manage corruption risk.  We are well placed to assess the adequacy and effectiveness of your programme, assist with developing one that is consistent with best practice, or even support you in the implementation of your programme. To read more about our services around preventing, detecting and responding to corruption risk, see our Deloitte Bribery and Corruption Survey 2015 – Australia (pp. 42-43)

End notes

1. Criminal Code Act 1995 (Cth)

2. Corporations Act 2001 (Cth)

3. OECD Working Group on Bribery in International Business Transactions, Phase 3 report on implementing the OECD Anti-Bribery Convention in Australia, OECD, October 2012, pp. 15–17. Accessed May 2016.

4. Corporations Act 2001 (Cth) s286, s1307.

5. Foreign Corrupt Practices Act (15 USC § 78dd-1, et seq., 1998)

6. OECD Working Group on Bribery in International Business Transactions, Phase 3 report on implementing the OECD Anti-Bribery Convention in Australia, OECD, October 2012, p. 17. Accessed May 2016.

7. Deloitte Forensic, Bribery and Corruption Survey 2015 – Australia & New Zealand, Deloitte, 2015, p. 8.

8. ibid, p. 8.

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