9th Issue (Aug 1998)
Editorial
Frequent readers of the "Ethics in Practice" newsletter must have noted that
the Hong Kong Ethics Development Centre, established under the auspices of the Community
Relations Department of the Independent Commission Against Corruption (ICAC), is a
permanent setup tasked with the promotion of business and related ethics on a long term
basis. Apart from assisting individual business organizations to develop ethics programme
to cater for their specific needs, the Centre, together with the ICAC, also offer other
tailor-made support services upon request.
An organization developing an ethics programme may consider using the services of the
Advisory Services Group which is a unit under the Corruption Prevention Department of the
ICAC. It comprises a group of experienced system experts who can provide free advice to
organizations in setting up an effective system that plugs corruption loopholes. A
corruption-free system helps form a framework or basis for the development of an ethical
environment which is essential in fostering a high ethical standard among the staff.
Following the shocking case involving a junior bank employee defrauding his employer of
$147 million in "About the Trade" in the January issue, this time we would like
to share with you some real cases in the construction industry. Some upcoming events to be
organized by the Centre for professionals / personnel in the field will also be
introduced. As for "Ethics at Work" column, a shining example of a local bank
implementing a Business Ethics Campaign for all staff of the corporation is portrayed.
 Message from Mr. Robin PEARD
Chairman of the Corruption Prevention Advisory Committee
The Corruption Prevention Advisory Committee (CPAC) advises the ICAC on its statutory
function to prevent corruption in both the public and private sectors. The Committee meets
monthly to consider assignment reports prepared by the Corruption Prevention Department of
the ICAC mainly on the practices and procedures of public sector organisations which may
be conducive to corruption. We have seven sub-committees, one of which advises on the
Department's work for the private sector. While serving as a member and then as Chairman
of CPAC, I have read many of these reports. I can vouch for the highly professional way
work systems are analysed and corruption prevention recommendations made. One lesson to be
learnt from the reports is that many opportunities for corruption and malpractice are the
result of a lack of systems control, in the public and private sectors alike.
In the private sector, we can expect even a small family business to set up a good
management system in order to compete. The price paid for corruption and malpractice by a
company in the absence of a good system can be very high. Not only will it add to overhead
and reduce profit margins, but corruption also damages business reputation which is highly
important to business success.
In the past few years, slightly over 50% of the corruption reports received by the ICAC
related to the private sector. The Corruption Prevention Department, through its Advisory
Services Group (ASG) provides corruption prevention advice to private sector companies.
Since its inception in 1985, ASG has assisted over 1,900 private companies engaged in a
great variety of businesses.
"Prevention is better than cure" is never a cliche. In this issue of the
"Ethics in Practice", you will learn more about the ASG and its services, which
I highly recommend to you. The service is free and confidential, and is akin to a
management consultancy service, the emphasis being on improving system control and
building up safeguards. The ASG is also mindful of the need for commercial considerations
and its recommendations endeavour to be tailor-made to suit the operational needs of
individual businesses.
Advisory Services Group
A company's profit can dribble away through corruption, fraud and malpractice by its
employees. As an employer or manager and with the assistance of the ASG, you can protect
your company's profit by identifying high risk areas and introducing system control.
What is system control?
System control is a mechanism to deter or prevent corruption, fraud and malpractice at
all levels of a company's operation. The essential elements of system control include:
- establishing clear procedures and responsibilities;
- ensuring effective supervision;
- maintaining proper records;
- protecting sensitive information;
- incorporating checks and balances;
- conducting periodic reviews.
How can ASG assist?
One of the ICAC's statutory duties, as prescribed in the ICAC Ordinance, is to advise
and assist any person, on his request, on ways in which corrupt practices may be
eliminated. On request, the ASG discusses with you or conducts internal audit studies to
identify the problems and weaknesses in the system, and recommends appropriate solutions,
free of charge and in strict confidence. Besides the experience with more than 1,900
private companies, ASG also has access to the databank built up by the 2,200 studies
completed by the Corruption Prevention Department on various areas of work of Government
departments and public organizations. This has enabled ASG to draw on the experience and
give practical and effective advice to suit nearly every situation.
What are the concerns of the companies?
Purchasing is the most common area of concern of the companies which have sought ASG
advice. Many ASG clients lack proper procedures or controls in this area. Probably
everyone knows, or thinks he knows, how to buy, but few are aware of all the intricacies
of a well-designed and well-operated acquisition system. In view of this, the Corruption
Prevention Department, including the ASG, has developed Best Practices Packages for the
most corruption prone operations.
The areas of concern include purchasing, accounting procedures, store management, sales
and marketing, and personnel management. On staff ethics, we have assisted a large number
of companies in drawing up a code of conduct, and guidelines on acceptance of advantages.
How to seek ASG assistance?
Simply dial our hotline 2526 6363 or fax to 2521 8479.
How long does ASG take to advise?
We pledge to respond to any request within two working days. Discussions will be held
at your convenience. Normally one or two half-day meetings will suffice. Advice will be
given during the meeting and confirmed in writing through a letter.
What if I don't accept your advice?
We will be happy to discuss alternatives. As our recommendations are tailor-made,
experience has indicated that they are mostly well accepted by the clients. It is also up
to you whether or not to implement our recommendations.
Our clients
Our clients range from a small retail shop or an owners corporation to a multinational
corporation or a professional body. The Sea Land Group, a US based company, which operates
the Asia Terminals Ltd. at the Kwai Chung Container Terminals and other cargo related
services in the territory, first sought ASG's advice on its procurement procedures in
1995, and has become our regular client since, with the most recent advice being given on
its facility maintenance system.
In February 1997, a seminar was jointly held by the Hong Kong Association of Property
Management Companies and the ICAC to promote business ethics of the property management
trade and the services of ASG. After the seminar, a number of the participating property
management companies approached the ASG for service, including the Goodwell Property
Management Ltd. which sought advice on the company's purchasing procedures, staff
administration, human resources management, accounting and finance processes, as well as
the booking and cash handling procedures of a large residents' club house which the
company managed.
The Cathay Pacific Catering Services (HK) Ltd., a subsidiary of Cathay Pacific Airways
Ltd., provides aircraft meals to over 30 airlines with planes departing from Hong Kong. On
the company's request in 1996, ASG carried out a study on its procurement system for food
and non-food items.
What the clients say
We value feedback on our services. Miss Carrie Lau, Director of Procurement of the Sea
Land Group, said in her response to our report on the company's procurement system that
"..... this report has given many valuable recommendations which are very useful to
improve our internal control .....".
Mr Jimmy Mak, Chairman of the Professional Practice Committee of the Hong Kong
Association of Property Management Companies, and Director and General Manager of Goodwell
Property Management Ltd., said in his replies to the ASG that "..... your valuable
suggestions which help us to eliminate possible loopholes in our procedures are totally
accepted by us ..." and that "..... thank you for your advice; the suggestions
have been implemented .....".
Miss Loretta Lo, Planning and Supplies Manager of Cathay Pacific Catering Services (HK)
Ltd., wrote to inform us after receiving our report on the company's procurement
procedures that "..... we have already made some changes to the procurement
procedures based on your recommendations, and are in the process of reviewing our
purchasing policy to incorporate your recommendations .....".
 About the
Trade
The construction industry plays a significant role in the Hong Kong economy. However,
as construction projects normally involve complex and segmented processes and considerable
amount of money, temptation for corruption and malpractice in the industry is great. Fraud
and corruption cases in the industry were not uncommon. They ranged from frontline staff
accepting bribes for expedition of tasks to project managers using illegal means to obtain
contracts. As a matter of fact, the industry occupied a steady 6-7% of the total number of
corruption reports received by the ICAC in the past years. The following are two real
cases :
Case 1 :
Eddie CHEUNG (false name) was the site manager of PQR Construction Company which was
working on a Home Ownership Scheme (Private Sector Participation Scheme) project at Tuen
Mun, N.T.
In mid-Jan 97, Eddie noticed that XYZ Company, a concrete filling subcontractor, was
not using the crane service provided by PQR to convey concrete within the work site. Eddie
asked Paul WONG (false name), the Director of XYZ the reason why, and was told that two
crane operators employed by PQR had solicited money from Paul at a rate of $5 per cubic
metre of concrete they delivered. Paul admitted that he made several payments to the crane
operators. Eddie alerted the management of PQR and a committee comprising senior staff
interviewed the two crane operators, who admitted accepting the tea money. PQR dismissed
the two staff immediately after the interview, and reported the matter to the ICAC.
Under caution, Paul admitted that he had paid $1,200 and $3,000 to the two crane
operators respectively, as a reward for their facilitating the delivery process of
concrete at site for XYZ.
In Oct 97, Paul was charged with offering an advantage, he pleaded guilty and was fined
$15,000. The two crane operators were charged with accepting an advantage, and were
sentenced to six months' imprisonment, suspended for one year, and each fined $15,000.
They were also ordered to pay $1,800 and $2,400 respectively in restitution to XYZ
Company.
Case 2 :
Peter LEE (false name) was the former electrical engineer of ABC Construction Company,
which was the main contractor for building the Ting Kau Bridge linking Ting Kau and Tsing
Yi Island. Peter was responsible for supervising the electrical installation and
maintenance work carried out by workers of sub-contractors.
John CHAN (false name) was the proprietor of a subcontractor XYZ providing electrical
services to ABC. In order to secure his business, John offered $200,000 to Peter who
accepted the sum between April 1995 and May 1996 in return for hiring workers from XYZ to
perform electrical works relating to Ting Kau Bridge project. In order to cover up the
corrupt payments, Peter asked John to claim wages for one or two bogus workers each day.
The deal did not go on for too long. Both Peter and John were arrested by the ICAC in
June 1996, after which Peter asked John not to become a prosecution witness and incited
John's other employees not to cooperate with the ICAC. Peter also took away a visitor's
register from the management office of his new flat to destroy evidence showing that two
electricians from John's company had been doing renovation work for Peter's new flat
instead of working for ABC Company on site.
As a result, Peter was charged with accepting $200,000 bribes and attempting to pervert
the course of public justice. He was convicted and sentenced to two years and nine month's
imprisonment.
Lessons to be Learnt
The first case illustrated clearly a typical corruption case where the crane operators
made use of their duties to solicit and accept advantages from the sub-contractors.
Obviously, employers would not agree to that. The main contractor made a wise decision and
took prompt action in reporting the case to the ICAC. It also revealed common problems in
site administration, e.g. lack of supervision of site staff and inadequate communication
with sub-contractors.
The second case illustrated that corruption is not confined to certain groups of
employees. All positions are alike in that temptations could pop out whenever an employee
is entrusted with authority. Even professionals might be exposed and succumb to
temptations. They could exercise their discretion in the context of work for personal
gains. However, the price paid by the culprit could be great, including : his career, his
freedom, his future, etc. The risk is simply not worth it.
As a manager, special attention should be paid to :
- compliance to rules and regulations of the company/trade/profession;
- appropriate controls on work procedures and administrative measures and systems; and
- staff's awareness of the company's ethical standards and if possible, training should be
provided for staff regarding the company rules, requirements of laws and the ethical
values of the company.
The Community Relations Department of the ICAC and the Hong Kong Ethics Development
Centre will be organizing two seminars for the construction industry and engineers in
September and November 1998 respectively. The first one will focus on the corruption-prone
areas in the field while the latter will concentrate on professional ethics. If you wish
to know more about the two seminars and other related services provided by the Centre,
please call 2587 9812.
A Few Tips for Tendering Procedures in the Construction
Industry
- A list of approved contractors /subcontractors
- Open and equitable tendering procedures
- All tender documents and information kept confidential before award of contract
- Proper procedures in handling tenders and opening of the tender box
- Evaluation of tenders to be in accordance with laid down criteria
- Transparent process and comprehensive assessment
The above are some recommendations by the Advisory Services Group. The Best Practices
Packages also give suggestions on practices and procedures on other vulnerable areas which
warrants attention. Please call 2526 6363 for more details.
 Ethics at
Work
The Hang Seng Bank Experience
The mission statement of the Hang Seng Bank is "to be the best-managed commercial
bank in Hong Kong with a growing presence in the Mainland and with service excellence as
its hallmark". The Bank has informed every staff member through internal circulars
and its Code of Conduct of its four expectations : staff are to meet customers needs, to
develop team spirit, to use resources efficiently and to maintain a high standard of
integrity. It is the Bank's firm belief that ethical business conduct produces
professional quality service which in turn generates and expands business. In order to
realize the spirit of this firm belief, a series of initiatives was launched by the Bank
in the first quarter of this year.
In January, Hang Seng Bank brought its 400 executives together to attend the 'Achieve
Excellence by Integrity' Corruption and Fraud Prevention Seminars conducted by the former
Senior Officer of the Hong Kong Ethics Development Centre, Ms Phoebe CHAN (now Deputy
Regional Officer of ICAC's Kowloon Central Office). Ms CHAN shared her views on how
integrity can be maintained in an organization through managing staff integrity and
ethical leadership among executives themselves. Representatives from top management
including Managing Director and Deputy Chief Executive, Mr. Roger LUK, attended the
seminars and emphasized the Bank's determination to excel in upholding high ethical
standards. Mr. LUK said : "We believe ethical management is a major contributing
factor behind the Bank's success. To meet future challenges, we are more determined than
ever to uphold an ethical culture in our organization from top down, and there will be no
place for complacence." At the end of the seminars, executives were given a
'Checklist for Managers' for follow-up action to sustain impact.
Executives, having shared views and deliberations with colleagues at these seminars,
took the same messages to their branches/units in March by making use of a training
package produced by the Bank's Training & Development Department named 'Achieving
Excellence by Integrity - Ethics Plus Model'. Specially produced for this purpose, the
package contained a training video, discussion sheets and useful references. An 'ethical
decision making model' was introduced to advise staff to follow in handling ethical
dilemmas in their daily work. In April, the Training and Development Department of the
Bank produced two 4-minute episodes in a tape which contained a dialogue between a
narrator and an ICAC officer regarding ethical concerns for bank staff. This short tape
was brought to the attention of all Hang Seng Bank staff through the Bank's morning
broadcasts. In the same month, the Bank published in its newsletter, 'The Perspective', a
one-page article on 'Ethical Code of Conduct' to give further prominence to the subject.
Hang Seng Bank's Senior Training and Development Manager Ms Janice LI said that the
ultimate objective of this series of initiatives was to highlight the Bank's commitments
to every staff 'loud and clear'. "We believe the upholding of integrity is the
responsibility of every member of the Bank and concertedly, we can build up a corporate
culture of a high ethical standard. In doing so, we would succeed in rendering quality
services to our customers," said Ms LI.
 EDC News
After a series of successful seminars "Achieve Excellence by Integrity :
Corruption and Fraud Prevention" for finance and accounting managers coorganized by
the Hong Kong Ethics Development Centre and the Hong Kong Society of Accountants(HKSA),
the two organizations again joined hands in producing a publication to promote a high
ethical standard in the accountancy profession. "Ethics in Management - A Practical
Guide for Professional Accountants" was published in January 98 and distributed to
the Society's practising and non-practising members.
In this joint publication, ethical issues encountered in the accountancy profession
were discussed. They were identified and reflected through a members' survey on their
major ethical concerns. An in-depth yet handy reference was provided on how to handle
these issues properly and at the same time, ethically. Professional advice by experienced
accountants in the form of commentaries was also included.
Those who are interested to get a copy of the Practical Guide, please call the Centre
at 2587 9812.
Following the launch of Business Ethics Campaign to listed companies and large private
companies in Hong Kong, the ethics promotion programme has been extended to small and
medium enterprises which constitutes a significant part of the local business community.
An SME booklet has been produced specifically for promoting ICAC services. They include :
formulation of a code of conduct; consultancy advice on system control and its
implementation; and training services. They are provided free of charge. Interested
parties please call 2587 9812 for details. |