Corruption and Bribery Assessment - Econometrics Algorithms and Perception Index

By Sabau, Elena Monica | Management & Marketing, January 1, 2013 | Go to article overview

Corruption and Bribery Assessment - Econometrics Algorithms and Perception Index


Sabau, Elena Monica, Management & Marketing


Abstract. Processes assessing the audit risk or fraud risk at company level, call on professional judgment and experience of auditors or antifraud managers considering as risk assessment procedure, the concentric circles technique, in assessing national economic environment, the industry and then the internal environment of the company. If for assessing risks in the industry we refer to the specific regulations and business practices and for reporting and internal environment of the organization, there is a wide range of internal control protocols that are verified and validated, for the national economic environment issues become more complicated. Most audit companies are using the perception indexes issued by Transparency International and World Bank Institute. This paper shows the limits of those indexes and presents an advanced econometric analysis for corruption level assessment. The paper demonstrates that using factor analysis by auditors becomes an instrument of major importance in determining accurate audit risk or fraud risk associated with national economic context

Keywords: corruption, bribery, econometric analysis, audit risk, macro-tools for national economic context audit risk

1. Introduction

Visible and prevalent in emerging markets, corruption is not a social phenomenon that can be ignored by businesses; it is a first line threat, which directly affects the competitive economic environment. As a social phenomenon, corruption is seen as abuse of power to achieve a personal gain, taking various forms from bribery to misappropriation of funds.

Today the phenomenon of corruption is not tacitly tackled, managed only within the national boundaries of a country, but is subject to international anticorruption movement involving many organizations and companies. International commitment against corruption is represented in the first line by the organization Transparency International (TI), the Organization for Economic Cooperation and Development (OECD), World Bank Institute (WBI) and the United Nations Convention against Corruption. Their collective action produces every year resources (in the form of study guides, indicators) that can be used by companies, public or official institutions to promote ethics and integrity policies, to condemn corruption and to build integrated systems for the prevention and detection of fraud acts.

Several studies (Pontelli, 2007, 2010, 2011; Ackerman, 2011; Cressy, 2011) refer to the measurement, macro-micro-economic implications and causes, using econometrics and public perception. Although popular, the Corruption Perceptions Index and Bribe Payers Barometer (IT) do not use mathematical basis, the relevance being challenged them (Duncan, 2006; Lambsdorff, 2006; Donchev, 2007; Urra, 2007).

Scientific economic analysis uses econometric models formalizing four categories of factors of influence: political and legal, historical, socio-cultural and economic factors, each emphasizing a specific model factor. The main studies are classified according to the factors considered and addressed economic sector: economic growth (Abed and Davoodi, 2000), specific risks (Bishop, 2009; Loughman, 2011), the decentralization process (Shah, 2006), the military sector (Gupta, 2001), public policies (Ackerman, 2005), and investment efficiency (Kaufman, 2008). Mathematical formalization using linear regression, VAR, co-integrated series analysis, model mimics and simultaneous equations systems (Andrew, 2008). Local research considers exogenous variables, endogenous and temporal trends, using the method of least squares and method of moments (Matthew, 2008; Andrei, 2008, 2009).

Corruption, approached initially only by formal institutions of a state, is now embedded by multinational companies in anti-fraud strategies and risk management process, being considered as a potential factor influencing business fraud risk and a trigger for the type of employee behavior.

Starting from the premise that the third pillar of fraud - justification (rationalization) is grounded in psychological behavior of an individual, external environmental factors influencing his life, the research study analyses the influence of macroeconomic factors on corruption. …

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