Important lessons for Nordic companies Operating in China
Bonnie Wong, Partner of Lind Andersson in China, who has worked with auditing and internal control at Nordic and International companies in China and Hong Kong for more than 15 years, has three main recommendations for Nordic aiming to reduce the risk of fraud in their Chinese operations.
It is important for companies to review their system for internal control in China. A good internal control system based on the COSO framework, should take into account the control environment, assess the company’s risks, install proper control activities, ensure good information and communication, and have a function for monitoring. Whereas a Nordic leadership style is often based on trust and a belief of common understanding, it is important in China to be explicit with what is expected of employees, and to ensure proper control activities and monitoring function in the organization.
An increasing number of larger firms are introducing whistleblower programs, which are proven to be effective tools for detecting fraudulent activities. As the aforementioned study revealed, there is in many Chinese business environments a culture of not reporting. When introducing such a whistleblower program in China, it is therefore of particular importance to educate and train employees the main purpose and key features of the program. Announcement by senior management to create the tone at the top and adaptation of group policies to Chinese context is something that is generally important for Swedish.
Many of the Nordic companies in China do not have an internal audit function in China. Such a monitoring function can continuously review and identify weaknesses in the internal control system, and can quickly follow up on suspicions or reports of irregularities.