John Lynch brings more than 30 years’ of fraud and corruption investigation experience to his role in IBAC's Investigations area, which he joined earlier this year. His extensive experience in managing and conducting fraud, corruption and misconduct investigations spans the public and private sectors and includes anti-bribery and corruption work in African and Asian countries.
Before joining IBAC, Mr Lynch worked with the Western Australian Police Force for 20 years and spent nine with the Corruption and Crime Commission (CCC) in Western Australia. He has also worked as a consultant on fraud and corruption investigations, risk assessment and policy development for private industry.
In this issue of IBAC Insights, Mr Lynch shares his thoughts on the role of organisational culture in corruption prevention.
Getting organisational culture right is essential for preventing and resisting corruption. In my 30 years' experience investigating fraud and corruption across the police, government and private sectors, I have found getting the culture right has a positive flow-on effect through organisations.
Some of my observations on the link between culture and corruption include:
- culture is led from the top and the role of middle management is critical
- small pockets of poor culture in organisations can fester and grow, impacting the entire organisation and potentially even the sector
- good governance is essential for achieving the desired organisational culture and good governance begins with robust risk assessments.
Culture is led from the top
Managers establish and drive the culture within their teams and organisations and they have the opportunity to set the tone and standard from the outset. When this is done well, employees will understand their roles and responsibilities, as well as the behaviours valued by their organisation.
Unfortunately, this is not always done well, as highlighted by the 2002 Royal commission into whether there has been corrupt of criminal conduct by any Western Australian Police Officer (known as the 'Kennedy Royal Commission'). Although the Commission's final report was delivered more than 15 years ago and reflects the climate of the time, I still refer to it because I worked as a supervisor in the team that investigated the matters arising out of the Commission and the experience provides good examples of how management drives culture.
The Kennedy Royal Commission's investigations found instances of corrupt and criminal conduct throughout the inquiry period (1985 to 2002) and identified a culture enabling corrupt and improper acts was instilled early on by management. Employees look to managers and senior colleagues to demonstrate the values of their team and organisation. New or junior employees are often more susceptible to becoming entrenched in existing cultural practice, either to fit in or because they lack the experience to resist it. This is a trait seen across all sectors. In one example, the Commission noted this recurring theme: 'junior detectives participated in corruption in order to be accepted, or at least not rejected, by other detectives'.[i] Even when officers refused to be involved in serious corruption, some did not report the involvement of others.
In my experience, junior detectives serving under superiors with strong positive cultural leadership were less likely to become involved in corrupt activities. An example of this comes from personal experience when I joined the second-hand dealers’ squad in 1990. The team’s role was to examine pawnbrokers so we were responsible for seizing and handling a large amount of stolen property. There is an inherent risk of corruption with this type of work but the officer in charge set the standard from the start. He met with all new staff when they joined the squad, and clearly outlined expectations. There was no ambiguity about our responsibilities, his expectations about our behaviour and the actions he would take if any deviation from the standard was detected. He both set the standard and led by example.
The Kennedy Royal Commission's findings reflected the importance of management, stating 'The level of police corruption is a reflection of the quality of management and supervision.' [ii] This observation stands in stark contrast to the view that 'just a few bad eggs' are responsible for corruption. Blaming the small number of complicit people risks overlooking the underlying factors that enable corruption to occur in the first place, such as organisational culture, poor management and lack of governance.
Small pockets of bad culture impact the whole organisation
No sector is immune to a culture that can enable corruption. However, pockets of bad culture can only exist where they are allowed to grow. If left unchecked, these small pockets can become organisational issues that will eventually present major financial and reputational risks.
During my work with the WA CCC, I worked on an investigation into a local council where an employee colluded with contractors and received significant financial gain from fraudulent dealings over a seven-year period. The behaviour was, to some extent, able to occur because the employee had control over recruitment in their section and this created the opportunity for this person to recruit 'like-minded' people into the team. The result was a 'closed shop' where information from the section to the executive was controlled and filtered. This effectively created an environment where the team 'closed ranks' when auditors or managers came to inspect the section, enabling opportunities for corrupt conduct to continue.
Within these closed ranks, the employee gained complete control over the procurement process in relation to maintenance, including setting budgets, raising orders and approving invoices for payment. He created a sub-culture within his close-knit team where corrupt conduct became the norm, with the knowledge any attempt to detect misconduct could be thwarted. However, it was the greater organisation culture that enabled this behaviour to go unchecked and spiral out of control. Unqualified trust, lack of internal controls, weak governance and poor organisational culture enabled corrupt activities to continue for seven years. The corruption caused the council great financial and reputational damage and ultimately contributed to the loss of trust across the whole local government sector.
Good governance is needed to get culture right
Robust governance is a major factor in developing a good culture. Policies and procedures alone are not enough unless backed up by true leadership that delivers and demonstrates governance. This needs to be embraced by managers at all levels but middle management has a particularly important role as it bridges the gap between policymakers and employees working at the operational level.
Organisations need to first identify what risks they face by using a thorough risk identification and assessment program. In the case of the council discussed above, the investigation found despite being one of the largest local governments in Western Australia, their risk register identified only one: that the council should be vigilant about ensuring employees driving council vehicles had a valid drivers’ licence. Even the most basic risk assessment would have identified many more, including the high potential of financial and reputational damage through procurement irregularities.
The first question to ask when developing governance and policies is, 'Do you know what your risks are?' Because if you don’t, how do you put processes in place to mitigate them? Once financial, reputational or technological risks are identified, processes and governance plans can be developed to manage them. The governance should be at the forefront and form the basis of the culture and should not be allowed to stagnate. It needs to be constantly reviewed and audited, with staff training playing a critical role and management and executive actively participating.
Creating a culture that actively resists corruption requires management to set the standard, conduct well thought-out risk assessments and ensure robust governance. With strong cultural leadership and good systems in place, pockets of bad culture will struggle to take hold.
As part of IBAC's prevention and education activities, we produce research and investigation reports to inform the public sector, police and the community about the risks and impacts of corruption. Two of our recent reports, Local government integrity frameworks review and State government integrity frameworks review, provide snapshots of integrity frameworks examined across a number of Victorian councils and state government agencies. The reports highlight examples of good practices and possible areas for improvement. They aim to help councils and state agencies review and strengthen their own integrity frameworks, to improve their capacity to prevent corrupt conduct.
[i] The Hon G A Kennedy AO QC 2004, Royal commission into whether there has been corrupt of criminal conduct by any Western Australian Police Officer, Final Report Vol. 1, p 104.
Read more in IBAC Insights Issue 20.