Rapid expansion opens up mining sector for fraud

| Friday September 10, 2010 00:00

E&Y global mining & metals leader Mike Elliott said that mining companies have reactivated capital projects and exploration activities in frontier areas, with large amounts of money being spent in these new areas.

The global financial crisis also increased the risk of fraud and corruption because of control cost cuts.

He said that this greater exposure had to be top of mind with boards, as dealing with fraud and corruption was central to meeting corporate governance responsibilities.

'The impact of this can be fundamental to an organisation's ability to operate. It impacts its bottom line, its social licence to operate, its ability to access new projects, the return of value to shareholders, and the reputation of the organisation.'

'The time to develop plans and procedures was not when the world was at your door looking for answers - fraud and corruption are key risks that organisations should be prepared for.' He noted that fraud and corruption was about deception and not every proactive measure was guaranteed to mitigate against it occurring.

'However, businesses with the appropriate foresight in fraud risk management are likely to fare better with regulators and law enforcement agencies if and when fraud does occur.'

Elliott added that the extensive reach of the new UK Bribery Act, introduced in April, highlighted why companies needed to be more proactive in preventing fraud and corruption.

'Like the Foreign Corrupt Practices Act (FCPA) in the US, the UK Bribery Act does not just apply to UK-based companies. However, the UK Bribery Act goes even further than the FCPA and will penalise companies with inadequate controls to prevent bribery.'

Elliott said that elements of the new Financial Reform Act in the US were also indicative of the increasing focus on fraud and corruption by governments, with Section 1504 of the Act requiring resource companies to publicly report all payments to any government or government agencies anywhere in the world. (Miningweekly)