Fighting corruption via accounting

Photo by: KAY KIMSONG
Chairman of Morison Kak & Associates Kak Key

Written by Kay Kimsong
Friday, 26 June 2009

Kak Key, chairman of Morison Kak & Associates, an auditing, tax and accounting firm, says that strict auditing can clean up Cambodia’s business environment for everyone’s benefit

CEO TALK

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BY KAY KIMSONG

Do people understand the importance of your firm's role in creating a better business environment for society?
When Cambodia first got peace, accounting and auditing were not things people knew of. When I came here, I was surprised to see businesses didn't use accounting systems - instead they used a notebook to write down money in and out of their businesses.

Now compared with those days in the 1990s, people pay more attention to numbers, but it remains the case that most local businesses operate without proper accounting and auditing practices.

I think that's due to two reasons: firstly, businesses here are commonly built on nepotism, and secondly, the authorities aren't aware how important a tool accounting and auditing is. We need proper accounting to measure the economy, to collect taxes.

Some of my clients have asked why they should pay tax if the guy next door isn't. And it seems the authorities are not serious - in 2007 the Ministry of Economy and Finance urged 700 enterprises to get audited, but my firm, which is the third-largest in the country, didn't hear from a single company.

Does the government seem keen to see a single standard for accounting to match other countries in the region?
The answer is somewhat technical - when we set up the accounting system the two institutions created were the National Accounting Council, which is a government agency playing the role of government regulator and standards-setter, and the Kampuchea Institute of Certified Public Accountants and Auditors (KICPAA), an association of private and independent accountants and auditors.

To date, the government hasn't used this, but the proposed stock exchange will need a standardised accounting system with one accounting language which everyone can understand if it is to operate properly.

How hard will it be for government to urge private and public enterprises to accept international accounting standards if most don't commit to releasing financial data?
If this stays the same, Cambodia won't develop. The government is the only body that can enforce new policies, but I wonder whether they have the commitment - as things stand they can split the revenue.

I did a test at a Phnom Penh noodle shop recently and asked a waiter how much money he earns. He wouldn't tell me, saying that nobody can afford to tell the truth. Personally, I don't believe that rich officials and businesspeople are committed to operating in a proper way.

A recent news story on corruption claimed graft costs the government US$500 million. Does that sound accurate?
This is a perfect example. But the number can't be proven because we have no accounting or auditing systems in place. From my point of view, the government has not strengthened accountability and transparency.

To comment on that figure, you need accurate numbers. In this case, how can you judge who is wrong and who is right? If one side could produce evidence to prove its figures, the question wouldn't come up.

What methods does the Ministry of Finance use to collect taxes?
Hmmm. I can't answer this question, but I would also like to know. In France, where I have lived, all companies produce a declaration for the tax department every year-end.
The tax officials check and verify those figures, and any firm violating the rules is fully responsible under the law.

But Cambodia doesn't have a law to punish those who steal tax revenues, do we?
From my perspective, I don't see any law that requires the punishment of those who steal tax revenues.
You and I might know that corruption is happening on a large scale, but the issue will only improve once the government shows the willingness to produce the tools to fight corruption.

How much time would it take Cambodia to improve - to be as clean as say Singapore?
Education is necessary. Given that low-quality education leads to low-quality skilled staff such as doctors and accountants, I think we will need one more generation. Improving resources is important, but it takes time.

The only university for studying accounting is Vanda Accounting. How good is it, and are the country's youths interested in learning these skills?
I know Mr Heng Vanda well, and we have talked in the past about education. I am not in a position to comment on the quality of his institution. But as far as I can see, most universities are driven by the profit motive. My firm is always in need of quality accountants, because increasing numbers of banks and international NGOs sign up as clients.

Can you believe that to recruit one senior accountant I had to fly to Manila and Kuala Lumpur? I really wanted to pay that kind of fat salary to a Khmer kid, but I couldn't find any.

We've previously trained some good accountants, but they normally jump ship. If universities here were able to produce quality accountants, this sort of thing wouldn't happen.

How difficult was it to start your business when very few clients are interested in a professional accounting and auditing service?
It is definitely tough. The country has just four accounting and auditing firms: PriceWaterhouseCoopers, KPMG, Morison Kak & Associates and Ernst & Young.

The four firms combined earn less than US$10 million revenue a year. In other countries, just one firm can earn millions.

I am calling on government to force local and foreign enterprises to use proper accounting tools - this will boost tax collection and benefit everyone.

Are you certain that using accounting and auditing standards are tools to reduce corruption and increase tax revenue?
Yes. It provides a tool for transparency in financial statements and is key for developing business. It produces a win-win situation for all.