Corporate governance

Remarks at European Confederation of Institutes of Internal Auditing 2015 Annual Conference

 


Remarks by Angel Gurría

Secretary-General, OECD

Palais des Congrès, Paris

21 September 2015

(As prepared for delivery)

 

Ladies and Gentlemen,

 

I am delighted to participate in the 2015 Annual Conference of the European Confederation of Institutes of Internal Auditing (ECIIA). Internal auditors are on the frontlines in the fight against corruption and in ensuring that the integrity, and hence the credibility, of public and private institutions is maintained.

 

 

The risks of corruption and fraudulent tax practices

 

The adverse effects of corruption and fraudulent practices on business are well-known. We know that the lack of a level playing field for firms not only hurts their bottom line, but also the economy as a whole, by discouraging investment and reducing competitiveness. Ultimately, these practices translate into higher prices for the consumer.

 

Corruption and fraud also threaten the efficiency, reliability and quality of the public sector, including state-owned and controlled enterprises. The perception of corruption and fraud undermines confidence in institutions. As the OECD Government at a Glance 2015 report shows, trust in government and perceived levels of corruption in government are inversely, and strongly, correlated.

 

 

The OECD’s role in strengthening internal controls and audit functions

 

To tackle these challenges and mitigate their effects, the OECD is working in a wide spectrum of policy areas: anti-bribery, public procurement, lobbying or money laundering. Strengthening the role of internal controls and audit functions is one of our key tools to help combat corruption and fraud.

 

The cornerstone of our fight against transnational corruption is the Anti-Bribery Convention, of which Article 8 states that Parties must have legislative provisions on accounting and auditing to prevent companies, and individuals, from making or hiding bribe payments.

 

In recognition of the important role played by the auditing profession, in 2009 we adopted a Recommendation to further combating foreign bribery. It requires member countries to ensure that auditors report suspected bribery to management and corporate monitoring bodies, and consider reporting to external law enforcement authorities as well.

 

In addition, as part of the constant monitoring of the implementation of the Convention, the OECD regularly calls on countries to strengthen their accounting and auditing frameworks with respect to foreign bribery. We also recognise the workplace retaliation risks to which accountants and auditors are exposed, and are working hard with our members to ensure effective and comprehensive whistleblower protection laws are in place, and that they are enforced.

 

Let’s also not forget that, in order for internal auditors to play a key role in the global fight against foreign bribery, a whole-of-company approach is required. The recently updated OECD Principles of Corporate Governance recommend that internal auditors report directly to an independent audit committee of the board, comprised of members who possess the necessary skills and are in a position to exercise objective independent judgement. According to a recent survey of corporate practices conducted as part of our Trust and Business Project, more than half of all companies have assigned responsibilities for integrity oversight to their audit committees. So we still have some way to go.

 

The Principles also emphasise the role that the board has to play in terms of managing risks, including compliance with tax law requirements. Many jurisdictions are increasingly demanding that boards oversee the tax planning strategies put in place by the management – a requirement intended to discourage practices, such as pursuing aggressive tax avoidance.

 

The OECD has been extremely active in supporting the efforts aimed at enhancing compliance with tax law requirements through the OECD-G20 Base Erosion and Profit Shifting Project (BEPS). BEPS addresses the loopholes in the international tax system which allow profits to be separated from economic activity and shifted to low or no tax jurisdictions.

 

The BEPS Project endorsed by all 44 OECD and G20 members, will deliver its outcomes this October marking a significant breakthrough in international tax policy. It forms part of the growing trend towards enhanced tax transparency and improved cross-border exchange of information between tax authorities.

 

One of the core BEPS measures will require large multinationals to provide clear annual reporting on how and where they allocate key resources and assets across their global operations. Auditors have an important role to play in ensuring the reliability and integrity of these reports.

 

 

Drawing on lessons learnt

 

Over the years, we have witnessed numerous success stories in the best-performing countries in effectively tackling corruption and promoting internal auditing. I believe it is crucial to our work to draw from the lessons learnt and to promote the central factors of these experiences.

 

For example, internal controls must be balanced with good risk assessment in order to effectively reduce fraud without impacting the efficiency and timely responsiveness to citizens’ needs. Leadership should be fully geared towards supporting organisations’ effective internal controls and audit against fraud and corruption. Training and capacity-building must be ongoing and not only focus on internal control and audit staff, but also senior management across the organisation. And, linking of internal control and audit objectives into broader strategies, such as communications and managers’ performance.

 

Last but not least, it is of crucial importance for accounting and auditing firms to ensure that they, themselves, have in place the necessary internal controls, ethics and compliance programmes. You must set the example!

 

Ladies and Gentlemen:

 

Auditors are one of the main the guardians of our market economies, the guarantors of our trust in companies, public institutions and international organisations. You play a crucial role in the fight against corruption. You are the protectors of fairness in our economies and societies.

 

Let’s keep learning from each other. Building trust demands a joint effort and a coordinated approach. I am delighted that the OECD – where our own internal audit team has once again achieved the highest IIA rating in its latest external quality assessment – is helping build this response.

 

I hope that your discussions over the next two days will be very productive.

 

Thank you.


 

 

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