CORRUPTION PREVENTION SERIES 

   Advisory Services Group

       The Advisory Services Group (ASG) of the Corruption Prevention Department, ICAC provides free corruption prevention services to private companies to strengthen their control systems to guard against corruption and malpractice.

      Since its inception in 1985, ASG has provided corruption prevention services to over 3,000 private companies of different trades and sizes.  The services provided are confidential, free of charge and tailor-made to address the corruption prevention needs of individual companies.  Moreover, the companies have absolute discretion in adopting the advice provided by ASG. 

       If you are interested in ASG’s corruption prevention services, please contact us by phone (2526-6363), fax (2522-0505) or email (asg@cpd.icac.org.hk).  We pledge to respond to requests within two working days.

 Conclusion

      There are in total 3 installments in this series of professional advice from the Advisory Services Group of the Corruption Prevention Department, ICAC on the practical approach in protecting one’s business against corruption or malpractice.  The next installment will discuss ways to properly manage stocks.

 

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  (Article provided by the ASG of the Corruption Prevention Department, ICAC)

 

Corruption Prevention Series (1)

      Lying ill in a sick bed, we would likely recall an old saying “Prevention is better than cure” and regret not having been more health conscious and not having taken the precautionary steps in the first place to guard ourselves against any viral/bacterial attack or to root it out before it started causing problems.

      “…… The same principle applies to businesses.  A sound control system in business operations is just like a strong immune system.  It protects your business against corruption or malpractice……” said Mrs. Wendy Mark, Group Head of the Advisory Services Group of the Corruption Prevention Department, ICAC.  Let us share with you some advice from our professional business “health” consultant on how to safeguard one’s business against corruption or malpractice.

“Prevention is Better than Cure”

       We are all aware that, under the “Prevention is better than cure” philosophy, in addition to a healthy and balanced diet and appropriate physical exercise, routine check-ups are essential in helping a person stay healthy.  Interestingly, this philosophy is also true for one’s business.  Subjecting your business operations to regular reviews, you can detect and address any potential risk at the earliest instant so as to ensure the future health of your company.

“Health” Checklist – Procurement

        Procurement is a common core or supporting business function in most if not all companies.  As the business owner, you must be eager to “take the temperature” of this function in your company.  You are therefore advised to spend a few minutes to complete the “health” checklist below.

Procedural Guidelines	Yes	No
1.  Are there written guidelines issued on the procurement system?	q	q
2.  Are the procurement methods and the corresponding procedures for purchases of different values specified?	q	q
3.  Are there specified authorization levels for different financial limits?	q	q
4.  Are the procedures and approval authority for urgent purchases specified?	q	q
5.  Are there a warning against bribery and the requirement for staff to declare any conflict of interest?	q	q
Segregation of Duties	Yes	No
1.  Is there adequate division of labour for the following functions:
- sourcing and approving suppliers/contractors?	q	q
- issuing and approving purchase orders?	q	q
- receiving goods and certifying services delivered?	q	q
- certifying and approving payment?	q	q
Requisitions	Yes	No
1.  Is a formal requisition for purchases required?	q	q
2.  Do all staff concerned know the requisition process?	q	q
3.  Do requisitions capture sufficient details on the transactions?	q	q
4.  Are specimen signatures of approving staff members maintained for checking of authenticity?	q	q
List of Suppliers	Yes	No
1.  Is there a list of suitable suppliers?	q	q
2.  Are the criteria and procedures for the admission to or deletion from the list defined and made known to the suppliers?	q	q
3.  Is there an appraisal system to assess the performance of the listed suppliers?	q	q
Direct Purchases	Yes	No
1.  Are the financial limits and authority for direct purchases clearly laid down?	q	q
2.  Is there a control mechanism to ensure that fair price is obtained, no undue preference is given and orders are not split to circumvent the normal bidding or approval procedures?	q	q
Quotations	Yes	No
1.  Are the nature and value of goods/services purchased by quotation, and the minimum number of bids specified?	q	q
2.  Is the level of the authorizing staff member specified?	q	q
3.  Are there requirements to record verbal quotations and justifications for any variance from the standard procedures?	q	q
4.  Are security measures in place to prevent leakage of quotation information or loss of quotations?
5.  Are random checks conducted to detect any manipulation of quotations?	q	q
Electronic Purchasing	Yes	No
1.  Are there unique user identity codes and passwords to verify the identity of each authorized user?	q	q
2.  Are levels of computer access rights and procurement authority defined?	q	q
3.  Are information reports generated for monitoring and verification purposes?	q	q
4.  Are confidential data encrypted?	q	q
5.  Are there any safeguards to prevent access of bid information before the closing time, to reject late submissions and to ensure retrieval of information by at least two authorized users?	q	q
Tenders	Yes	No
1.  Is full information given in the tender documents?	q	q
2.  Are tenderers advised to submit tenders in an envelope without their identity and marked with reference information, e.g. the tender reference and deadline?	q	q
3.  Is the tender box double-locked with the keys held separately by two staff members of appropriate level?	q	q
4.  Are there appropriate procedures for opening tenders and pre-determined criteria for evaluating tenders?	q	q
5.  Are the analysis of the tenders, recommendation and justification for not recommending the lowest conforming tender recorded?	q	q
6.  Is there an objective assessment mechanism for selecting a tender where price is not the determining factor?	q	q
7.  Are tenderers requested to submit technical proposals and price offers in separate envelopes where important weighting is given to the technical proposal?	q	q
8.  Are unsuccessful bidders notified of the tender result?	q	q
9.  Are the conditions and procedures specified for the waiver of competitive bidding procedures?	q	q
Miscellaneous	Yes	No
1.  Is the organization’s policy on procurement and prohibition of staff from accepting advantages made known to all suppliers?	q	q
2.  Is the petty cash reimbursement made against an invoice or a claim certified by an appropriate authority?	q	q
3.  Are there guidelines governing the use of a Purchase Card?	q	q

“Health” Report

How many “No”s?	Health Status	Action
Nil	Low Risk	To set the time frame for next check-up
Less than 5	Medium Risk	To consider consulting professionals to improve the system
5 or more	High Risk	To immediately seek professional advice to address the potential problems

 

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Corruption Prevention Series (2)

       “…… Do you know how a parasite survives?  It feeds on the nutrition “stolen” from a poor host.  You can of course imagine how a man suffering from the parasitic disease looks like.  What do you think of your business if somebody “feeds” on your stock?……” asked Mrs. Wendy Mark, Group Head of the Advisory Services Group of the Corruption Prevention Department, ICAC.

“Parasitic” Business

       “Hey pals, load the 100 cartons of computer chips into the truck now.  Hurry up!  We need to go to the other store to load another 100 cartons of memory cards.  Don’t miss the delivery schedules.”  “Do remember to check when the new orders will arrive.  We need to notify our customers when the goods will be delivered.”  One can hear such a conversation nearly every day.

       If you are the boss, you must have thought that with such a high stock turnover and tight delivery schedule, business results should be quite pleasing.  However, a few months later, you find your business making a loss instead!  The money you should have earned has slipped into the pockets of your staff who have been running their own business parallel to yours.  Worst of all, their business is “fed” on your stock, just like a parasite feeding on its host.  No wonder your business would end up having no sales, no receivables, and no stock at all!

      You should guard your stock against any misappropriation, e.g. theft.  Otherwise, you may end up in having a considerable loss.  It is timely to have a “health” check-up on your stock control system now.  Just spend a few minutes to complete the “health” checklist below.

Policy and Procedures	Yes	No
6.  Does the company have an established stock policy?	q	q
7.  Is the stock policy clearly known to the staff concerned?	q	q
8.  Are there written guidelines on stock control procedures and authorization levels for various functions?	q	q
9.  Does the policy specify :
a. the types of items that will be stocked?	q	q
b. the desirable and maximum stock levels?	q	q
c. the requirement to keep proper stock records?	q	q
Stock Records	Yes	No
5.  Does the stock voucher capture sufficient details on the transactions?	q	q
6.  Is each stock transaction entered promptly in the stock records?
7.  Is sequential numbering control used to facilitate checking of store vouchers?	q	q
8.  Are cancelled or amended transactions properly recorded and approved?	q	q
9.  Are stock records held securely?	q	q
10.    Where a computer system is used, is the access to the computer properly controlled and recorded?	q	q
Control and Supervision	Yes	No
4.  Is there adequate division of labour between:
a.                 issue of goods?	q	q
b.                 receipt of goods?	q	q
c.                 supervision of stock?	q	q
d.                 stock-take?	q	q
5.  Are the duties of a stock-keeper clearly defined?	q	q
6.  Is there an established procedure for handing over the stock?	q	q
Receipt of Stores	Yes	No
6.  Are there adequate physical safeguards in the goods receipt procedure?	q	q
7.  Is the goods receipt voucher sequentially numbered and properly prepared to record sufficient details of the transaction?	q	q
8.  Are there policies and procedures for handling exceptions during goods receipts, such as damaged goods, lodging claims, short or over-delivery?	q	q
Issue of Stores	Yes	No
1.  Are goods issued supported by properly approved delivery vouchers?	q	q
2.  Does the stock-keeper maintain an up-to-date record of specimen signatures of the authorities for approving the issue of stores?	q	q
3.  Are store items issued on a “first in-first out” basis?	q	q
Stock Checks	Yes	No
10.    Are the supervisory officers not involved in stores management assigned to conduct surprise stock checks?	q	q
11.    Are there any policy and control procedures to deal with stock record variations?	q	q
12.    Is the authority for writing off any stock clearly defined?	q	q
Disposal of Stores	Yes	No
1.  Are there any guidelines on the circumstances under which stock items may be discarded, the procedures for the disposal of stock items, and the approving authorities?	q	q
Miscellaneous	Yes	No
4.  Are staff members in more sensitive jobs (e.g. receiving of goods) regularly rotated?	q	q
5.  Is physical security of the store regularly reviewed?	q	q
6.  Is stores management included in the schedule of internal audit?	q	q

“Health” Report

How many “No”s?	Health Status	Action
Nil	Low Risk	To set the time frame for the next check-up
Less than 5	Medium Risk	To consider consulting professionals to improve the system
5 or more	High Risk	To immediately seek professional advice to address the potential problems

 

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Corruption Prevention Series (3)

      “……Although the castle is protected by a strong fortress, it can be easily invaded and captured by your enemies if you do not have a team of good soldiers.  Similarly, a system equipped with all control measures but operated by fraudulent staff could still subject your business to a high risk of corruption or malpractice……”

Destroying the Company’s Fortress

      After a review by a consultant who charges several hundred thousands of dollars, a company will implement his recommendations in building “thick and high walls” to guard its core business against corruption and malpractice. 

      However, a few months later, the company is still a mess.  The escalating expenditure and dwindling income just do not make sense.  What has gone wrong?  The company has overlooked the system for recruiting appropriate staff and has brought in a gang of fraudsters who collude with each other to “demolish the castle walls”.  The company will finally fall apart.

“Health” Checklist – Staff Administration

      Some companies may have a very tight control mechanism for their core functions, such as sales, stores management, cash handling, etc, but spend minimal effort in devising proper control measures on their staff administration function.  We have to bear in mind that it is the company staff who operate its system.  Without good soldiers, your indestructible fortress does not work.  Would you like to check whether you have a proper staff administration system?  Spend a few minutes to complete the “health” checklist below.

Policy and Guidelines	Yes	No
10.    Is the company committed to the principles of openness, transparency and impartiality in staff administration?	q	q
11.    Are there written guidelines for various staff administration matters, such as staff recruitment & promotion, performance appraisals, overtime arrangements and staff complaints channels?	q	q
12.    Is there a code of conduct for staff, including rules on acceptance of advantages/entertainment, guidelines on conflict of interest and handling of confidential information?	q	q
Staff Recruitment and Promotion	Yes	No
11.                                      Are entry requirements clearly defined by the management and openly publicized?	q	q
12.                                      Are there control procedures to ensure all applications received are properly handled, such as registration upon receipt, review of the shortlisted candidates, use of scoring system in the evaluation, decision by a selection panel, record of the assessment and decision?	q	q
13.                                      Are the promotion criteria approved by the management and made known to all eligible staff?	q	q
14.                                      Is there a promotion board to consider all eligible staff according to pre-approved criteria?	q	q
15.                                      Is the recommendation approved by the management and the result announced as soon as possible?	q	q
Performance Appraisal	Yes	No
7.  Are the standards of performance against specified core competencies of each post made known to staff?	q	q
8.  Is there a review panel to moderate the ratings if there are many appraisees at the same level and appraising officers involved in the process?	q	q
9.  Is the appraisal report shown to and acknowledged by the appraisee?	q	q
Employment of Temporary Staff	Yes	No
9.  Are the number of temporary staff required, duration of engagement, and level of pay approved by the management?	q	q
10.                                      Are proper recruitment procedures followed, including performance appraisal (a simple one) and documentation?	q	q
11.                                      Is a pool of suitable candidates built up for meeting regular demand of temporary staff?	q	q
12.                                      Are there proper procedures to allocate work to the candidates in the pool?	q	q
Supervision of Attendance and Overtime	Yes	No
4.  Are attendance and overtime records checked by authorized supervisors and subject to supervisory surprise site checks against the attendance?	q	q
5.  Are the attendance registers or time clocks placed securely?	q	q
6.  Are checks properly recorded?	q	q
7.  Does the company establish benchmark output of different jobs and regularly check the output from overtime work against these benchmarks?	q	q
8.  Is the overtime work approved by designated managerial staff, justified and certified by supervisors?	q	q
9.  Is there a fair and objective mechanism to allocate overtime work to all eligible staff, including defined staff selection criteria and allocation method, transparency of the criteria and allocation method, and proper recording of overtime work?	q	q
Handling Staff Complaints	Yes	No
1.  Is there a channel for staff aggrieved by decisions on staff matters, such as promotion and performance appraisal, to lodge complaints?	q	q
2.  Is the complaint channel made known to all staff?	q	q
3.  Are there proper procedures to handle a complaint, such as strict confidence, proper records and independent investigation?	q	q
Miscellaneous	Yes	No
1.  Is there a fair and transparent system in allocating shift duties?	q	q
2.  Is the swapping of duties recorded and approved by supervisors?	q	q

“Health” Report

How many “No”?	Health Status	Action
Nil	Satisfactory	To set the time frame for next check-up
Less than 5	Room for Improvement	To consider consulting professionals to improve the system
5 or more	Emergency	To immediately seek professional advice to solve the control problems