The school secretary might have committed an offence under Section 9(3) of the Prevention of Bribery Ordinance (POBO) if he had submitted false documents, i.e. false PTA accounting records, to deceive his principal, i.e. the school.     

Though being a voluntary treasurer, Mike still has professional obligations to the PTA.  Mike should bring the issue to the attention of the PTA or consider reporting the suspected fraud to the school or law enforcement authorities. He should also avoid involve in any acts that might call his integrity and professionalism into question. He must take into account his own views on ethics and legality and offer advice to the PTA if there were better alternatives.  

As a professional accountant serving as a volunteer, Mike should always observe the Code of Ethics of Professional Accountants and comply with the fundamental principles of integrity, objectivity, professional competence and due care and avoid any conflict of interest. 

Ben could consider the following major factors when handling Dale’s request:

Professional / Company code of conduct

The Hong Kong Institute of Chartered Public Accountants (HKICPA) requires a professional accountant to comply with relevant laws and regulations, and avoid any conduct that the professional accountant knows or should know might discredit the profession.  Also, a professional accountant needs to comply with the fundamental principles of integrity and objectivity as stipulated in the HKICPA’s Code of Ethics for Professional Accountants which requires an accountant to be straightforward and honest in all professional and business relationships and avoid any conflict of interest situations.   Meanwhile, Ben also needs to observe his company’s code of conduct governing the above behaviours.

Legal Requirements

Ben might violate the Section 9(1) of the Prevention of Bribery Ordinance (POBO) if he accepted the advantage (luxury clubhouse membership) offered by Dale for helping Dale to obtain the bank loan by manipulating ABC’s accounting records; whereas Dale might violate Section 9(2) of the POBO by offering bribes.

Uncompromising Self-values

Helping Dale to get a bank loan by manipulating ABC’s accounting records might undermine Ben’s self-values of honesty, integrity and responsibility to his accounting firm.

Sunshine Test

If Ben accepted Dale’s offer and helped him to get the bank loan, he would fail to disclose his decision and the situation openly and honestly without misgiving.

When facing the above situation, Ben should avoid involve in any acts that might call his integrity and professionalism into question. He must take into account his own views on ethics and legality and offer advice to Dale if there were better alternatives.  

Zero tolerance to attempted bribes

If Dale insisted on asking for Ben’s help to get the bank loan, Ben should decline the advantage offered by Dale and report the attempted bribe to his accounting firm and the ICAC as soon as possible.

It would be an offence of Section 9 of the Prevention of Bribery Ordinance (POBO) if Teddy, as an employee of the law firm, without the approval of his employer, accepted the advantage (equal share of the mortgage loans) offered by Barry for assisting Barry to deceive the bank by preparing fake conveyancing documents. Barry might also violate the POBO for offering bribes. 

Moreover, Barry might also violate Section 9(3) of POBO for using false documents to deceive his principal (the bank) and Section 123 of the Banking Ordinance.  Both Barry and Terry might be liable for fraud and conspiracy to defraud.

Sandy, who submitted forged academic certificates and false professional history, with the intention to deceive her employer, might have already committed fraud.

Antonio was facing an ethical dilemma that might put his personal values such as compassion, responsibility and honesty to challenge. On one hand, it seems right for him to keep the secret for Sandy in view of her good potential and the reasons behind her fraudulent act; but on the other hand, he had the responsibility to protect the interest of the company and report any staff misconduct or illegal behaviour.  In handling the situation, Antonio should identify the relevant facts and take stock of all stakeholders concerned. The following factors should be taken into consideration when identifying viable alternatives and choosing the best course of action for himself:

1. Does his decision violate any professional, industry specific, or company code of conduct?
2. Is his decision against the law?
3. Does it correspond with his self-values such as honesty, fairness or compassion?
4. Can he disclose the decision to others openly and honestly without misgivings?

The ETHICS PLUS ethical decision making model might be helpful for him in solving the dilemma.

Other than committing a deception offence, the maintenance engineer breaches the Rules of Conduct of the Hong Kong Institution of Engineers, which require an engineer to treat his colleagues and co-workers fairly and to avoid abusing his authority.  Misusing his supervisory position for private gain, the maintenance engineer breaches the law and undermines the financial interest of his company.

Implementing proper controls on contracting procedures, carrying out frequent random supervisory checks and conducting regular communication with contractors and staff can help detect early symptoms of irregularities and prevent such malpractices from happening.  Encouraging staff to report malpractices to senior management or the compliance officer through proper channels of complaints will also be effective in stopping unscrupulous staff from committing a crime or malpractice.

Case Analysis

The foreman, CHAN, offered an advantage to the engineer (i.e. an employee and hence agent of the construction company) as a reward for assisting him to falsify attendance records, contrary to Section 9(2) of the Prevention of Bribery Ordinance (Cap.201) (POBO). Irrespective of whether the engineer accepts or rejects the bribe, the act of offering (by CHAN) already constitutes a criminal offence.  Should the engineer have accepted the bribe, the engineer would have committed a corruption offence and be charged under Section 9(1) of the POBO.    In addition, regardless of whether the engineer accepted the bribe, if he assists CHAN in falsifying the attendance record, this would amount to an offence under Section 9(3) of the POBO.  This provision stipulates that it is an offence for an employee to use any false document, receipt or account to deceive his employer.  Improper ethical behaviour may also lead to the revocation or suspension of a professional registration with a professional body and as a result the engineer would be restricted/prohibited from practice.

Case in Perspective

The lack of supervisory control and reliance on a manual tracking system over localised staff attendance create opportunities for personnel to abuse delegated authority, engage in unauthorised absences, commit payroll fraud, or offer bribes to secure the collusion of checking officers.  To address this problem, the main contractor should establish a system to strengthen attendance tracking and staff administration by implementing the following control measures –

(a) Eliminate susceptible manual systems and implement a digital attendance management system (e.g. fingerprint or facial recognition);

(b) In the interim, supplement manual systems with CCTV to authenticate staff presence, deter impersonation and provide verifiable records of attendance; and

(c) Conduct surprise on-site spot checks and physical headcounts to verify real-time worker presence by supervisors and/or independent units. 

Nearly all bank staff members who misuse customers’ funds believe that such action is only temporary and can be rectified shortly.  However, crime is committed once the funds are misused and such action cannot be ‘rectified’ even if the funds are ‘repaid’ before the crime comes into light. In this case study, the relationship manager (an agent) might have violated Section 9(3) of the Prevention of Bribery Ordinance (POBO) by using forged documents to deceive his bank (the principal) in approving an increase in Client A’s credit limit and Client A’s fraudulent new loan.  Also, the relationship manger could be liable for a series of other crimes including theft (transferring money from client’s account to his own), fraud and forgery.

From the perspectives of customer service, it may be desirable for a relationship manager to provide personal service and act as the bank’s single point of contact for important clients.  However, if all verification/clarification of questionable or doubtful transactions are routed through the relationship manager, it will undermine checks and balances and create opportunities for manipulations by unscrupulous relationship manager.

Moreover, banks should adopt good control practices to remind supervisors to stay vigilant to potential risk of corrupt practices and make thorough enquiries into any suspected irregularities.

Facing keen competition in the industry and pressure to secure loan business in the bank, a bank staff may cross the line. Over reliance on sales staff to provide borrowers’ information without counter checks would increase the risk of manipulation.

The Sales Executive, an employee (agent) of the finance company (the principal), intended to deceive/mislead the company by using invoices which contained false information. Notwithstanding he did not receive any bribes, he might have contravened Section 9(3) of the Prevention of Bribery Ordinance (POBO).

The Sales Executive, machine supplier and SME owners could be charged with fraud against the finance company, or conspiracy to defraud the finance company.

The Sales Executive rationalized his acts by regarding his practice as helping the finance company to secure more loan business, at the same time helping the SMEs to overcome difficult situations. However, the fact that customers had to obtain higher loans through a fraudulent means suggested that they are high risk customers. Granting them higher loans increased the risk exposure of the finance company.

Approving a higher loan based on inflated collateral value or bogus transactions might also result in an unusual increase in bad debt cases, and internal review by the finance company would detect the irregularity involved.

Banks should adopt good control practices such as setting up a central team to conduct vigilant due diligence on high credit risk customers, conducting independent assessment of machine suppliers involved in HP transactions to ascertain their reliability, gauging reasonableness of the sales prices on invoice, and conducting regular assurance check to detect irregularities/unusual trend.

Under Section 9 of the Prevention of Bribery Ordinance (POBO), it is an offence for any agent, without the approval of his principal, to solicit or accept an advantage as a reward for or an inducement to perform an act in relation to his principal’s affairs or business. The offeror will also be guilty of the offence. 

In this case, the manager, an employee (agent) of the finance company (the principal), accepted commission (advantage) from the property developer as a reward for favourably recommending the loan proposal (an act in relation to the finance company’s business). Under the POBO, the manager was considered to have accepted the advantage even his wife received the advantage on his behalf.  Hence, the manager might have contravened Section 9(1) of the POBO for accepting bribes. The property developer might have contravened Section 9(2) of the POBO for offering bribes.

On the other hand, the manager might have breached Section 9(2) of the POBO for bribing the property valuer (agent of the property valuation agency) to inflate the value of the collateral, while the latter might have contravened Section 9(1) of the POBO for accepting bribes from the manager. They also might have contravened Section 9(3) by each submitting false, misleading valuation reports to their employers.

The manager might have also breached the Banking Ordinance which prohibits any employee of an authorized institution to receive any gift, commission etc. for his own personal benefit or advantage or for that of any of his relatives, for procuring or endeavouring to procure for any person any advance, loan, financial guarantee or credit facility from that institution.

The relationship manager (agent) might have contravened Section 9(3) of the Prevention of Bribery Ordinance (POBO) by using a false document (forged customer instruction) to deceive the bank (the principal).  He might also be liable of a series of other crimes including theft, fraud and forgery.

Some elderly customers may be vulnerable to exploitation as they may trust bank staff members (e.g. the relationship manager) to execute transactions on their behalves (e.g. signing blank instruction forms or giving their e-banking passwords) so as to save physical visits to the bank.

The practice of keeping account advices for customers to collect later on is vulnerable to falsification or concealing irregularities.

Furthermore, inactive, dormant accounts with a large balance or credit line are subject to the risk of exploitation, as the account owners may not monitor their accounts properly or may have changed addresses without informing the bank.

Banks should devise control measures to protect dormant accounts from possible abuse and to avoid fraud. These control measures may include alerts on unusual fund movements, verification and confirmation with the customers, requirements for supervisors’ review/ override for transactions on inactive accounts, and requirements for identification of account holder when making withdrawals in person.  Moreover, implementing requirements for staff members to take annual vacation leave, arranging and introducing a backup/ second officer to vulnerable customers, and practising staff rotation (say, on a three-year basis) may also help detect irregularities and misconduct at an early stage.