The never-ending fight against fraud.

FRAUD HAS ALWAYS BEEN A PART OF THE GLOBAL MARketplace, and there are no signs of it subsiding, according to PricewaterhouseCoopers' (PWC's) 2007 Global Economic Crime Survey of more than 5,400 companies in 40 countries. Almost half of the companies report being the victim of fraud within the past two years--about the same amount as previous PWC studies in 2003 and 2005.

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The survey cites the "fraud control paradox" as a potential barrier to efforts to root out fraud and indicates that companies with better controls find more problems. The real issue is--"if you don't look, you don't see," the report notes, because "once you know what to look for and start looking for it, you're more likely to find it." The best way to combat the paradox is to keep one step ahead of fraudsters by constantly watching and updating controls.

The report also recommends that controls reflect the organization's culture and any fraud that is discovered be dealt with in an immediate, appropriate, and consistently punitive way. "If employees believe that reporting an economic crime will not be met with reciprocal and appropriate action by the company, especially when senior staff are involved, it will break down the corporate culture," says Steven Skalak, partner, Global and U.S. investigations leader with PWC in New York.

According to the study, the three industries hit hardest by fraud are insurance, retail and consumer, and government. Moreover, the average loss from fraud has been climbing. Total financial losses average US $3.2 million per firm, up from US $2.4 million in the 2005 survey. And 80 percent of respondents say the nonfinancial costs are more devastating, as shareholder trust is lost, relationships with suppliers are damaged, and staff morale takes a direct hit. Although it is impossible to wipe out fraud, learning how other organizations deal with the perpetrators and economic fallout can help in developing best practices to combat it, Skalak says.

ILLUSTRATIONS BY TIMOTHY COOK