According to an EY expert involved in the report, the level of corruption in Hungary was found to be similar to that found in South Africa.
Corruption practices are widespread in Hungary, as they are across Central and Eastern Europe, even though regulations in the past two years have become stricter, according to an EY survey entitled “Fraud and corruption — the easy option for growth?” published on May 20.
Survey respondents indicated that, in some cases, new regulations have in fact posed greater challenges for companies that are simply trying to do business. The researchers of EY, a global leader in assurance, tax, transaction and advisory services, conducted a total of 3,800 interviews with employees in 38 countries between December 2014 and January 2015, covering Europe, the Middle East, India and Africa. The firm, which has been conducting the survey for 14 years, carried out 100 interviews in Hungary. The research involved interviewing a sample of the largest companies in each country, including board directors, management and employees. Interviews were conducted on an anonymous basis in the local language online or in person.
According to respondents of the survey, Hungary is a leading country in terms of bribery and corrupt practices. Some 73% believe that corruption is widespread in Hungary, while in Eastern Europe that figure is 63%. In countries of “rapid growth” the figure is 61%, while in developed countries only 35% of the respondents believe corruption takes place.
Practices of bribery can take many forms. Some 14% of respondents from Hungary said that offering personal gifts is justifiable; 15% said it is alright to offer cash payments; 11% said that offering entertainment is acceptable; and 26% of the respondents said that any compensation of the aforementioned nature is justifiable.
“the survey does not necessarily reflect on the forms of corruption taking place in Hungary, our everyday experience is that we can see a wide range of schemes on the market, like conflict of interest schemes,”
Ferenc Bíró (right), Partner, Fraud Investigation & Dispute Services, EY Hungary told the Budapest Business Journal. “Kickbacks and bid rigging is also a form of bribery that often appears. We see quite a lot of examples of asset misappropriation, either including cash or inventory type fraud schemes,” the expert added.
Some 53% of the queried companies say the level of regulation in their sector has increased in the last two years, 33% say greater regulation in their sector is increasing the challenges for the successful growth of their business, while 14% say regulatory activity in their sector had a positive impact on ethical standards in their company.
The survey, however, suggests that the majority believe that if they followed their anti-bribery and anti-corruption policy very closely, it would not harm competitiveness in the market. Only 21% said they believe that following policies would hurt competitiveness as opposed to 61% who believe that following the guidelines of anti-bribery and anti-corruption policies do not affect competitiveness negatively.
“Clearly, the regulatory environment has become tougher, from both the regulatory oversight and legal perspectives, so it is more difficult to comply. We certainly do see, not only in Hungary but across the region, that in tough times people are more likely to cut corners. Both our experience and the results of the survey show that effective compliance is actually a requirement for sustainable success and sustainable business. I think it is paramount that many companies are actually committing themselves to doing business in an ethical manner and more companies continue to do so,” Bíró added.
Considering compliance and ethics, EY found that only 13% of the respondents rated their company’s ethical standards when doing business as very good, with only 17% claiming that ethical standards have gotten better in their company in the last two years. Some 16% see the level of regulatory activity in the last two years having had a positive impact on their company’s results. “It is a bit concerning that only 13% of respondents rated their services as ethical and good. These results are rather disappointing. What we recommend is that there are very basic building blocks that should be in place for effective compliance. And one of these is clearly walking the talk,” Bíró said.
According to the expert and EY’s survey, the key for improvement is in the hands of the leadership and management. “It is vital that employees see the commitment of the management for ethical business practices, and that the management behaves in an ethical manner and with integrity. You need to communicate this through anti-bribery and anti-corruption training sessions, for which we still have a long way to go in Hungary,” Bíró warned. “Our economy and our market players need to get accustomed to such practices. That goes with a thorough understanding of your risks on the market and within your company and establishing appropriate measures to deal with these risks. It is even more important if you compare the results of how widespread corruption is said to be in Hungary; the results are like in India or South Africa,” Bíró added.
EY’s survey also explored the willingness of businesses to indulge in manipulation of financial performance in order to enhance the overall image of the company. Hungary is among the leading countries in this respect, with 42% of the respondents saying that this practice does happen in the country. In countries of “rapid growth” 42% of the respondents said they believe this happens, while in Eastern Europe it is only 39%, and in developed countries only 33% reported such activity.
EY’s compiled data suggests that 53% of businesses believe that revenues have increased in the past two years, while 25% saw revenues dropping. Some 18% experienced revenues increasing a lot, 35% saw them increasing a little, 11% saw revenues staying the same, another 11% saw revenues dropping a little, with 14% said revenues have dropped a lot.
“I believe we see quite a lot of effort being exercised by various individual companies and government bodies to fight corruption in Hungary. I strongly believe that these efforts, though, need to be harmonized, because right now they are just being disbursed,” Bíró said. “Internally, among the market players, there is a lot to do in order to establish a compliance culture and to emphasize the importance of doing business in the right, clean way. Not only this survey but our other surveys clearly reveal that having a compliance culture and doing business in an ethical way does pay off. There is a direct correlation between how ethically you do business and to what extent you can defend your margin. The only way forward for sustainable growth and development for a company is to behave and act in a good manner,” the expert added.