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Fraud remains pervasive, PWC study shows.

Despite regulations and increased efforts to implement good internal controls, fraud remains a major threat to companies worldwide, a recent study by Price-water house Coopers found. In fact, nearly half of the 5,400 global companies surveyed reported they were victims of some form of economic crime in the past two years, and their average direct financial loss rose nearly 40% to $2.4 million from $1.7 million in 2005. In addition, the total direct losses exceeded $4.2 billion. The crimes included asset misappropriation, accounting fraud, bribery and corruption, money laundering, intellectual property infringement, and more.

These were just some of the results of the PWC 2007 Global Economic Crime Survey titled "Economic Crime: People, Culture and Controls." The survey also found that economic crime affects companies of all sizes, all types, in all industries, and on all continents. Nevertheless, most companies say they are confident that their control measures will limit their exposure to fraud in the future. Only 11% said they probably would be the victims of fraud during the next two years.

Regarding company size, the larger firms experienced the most fraud. Among those with 5,000 or more employees, 62% reported being victims of fraud. Fifty-two percent of those with 1,001 to 5,000 employees reported being victims, and 32% of small companies with fewer than 200 workers said they experienced a crime. As far as industry, fraud was found to be most prevalent in the insurance and retail sectors (57%), followed by government and the public sector (54%), financial services (46%), and automotive (44%).

The type of fraud varied by industry, but the study found that, overall, theft was reported by 30%, intellectual property infringement by 15%, corruption and bribery by 13%, accounting fraud by 12%, and money laundering by 4%. And who was committing the fraud? The study found that 85% were men, most often between the ages of 31 and 50, and half had college education or advanced degrees. More than half worked for the defrauded company, 26% were in senior management, and 43% were with the company more than five years.

Regarding countries experiencing economic crime, the survey found that it was as prevalent in fast-growing emerging economies such as Brazil, China, India, Indonesia, Mexico, Russia, and Turkey as it was in the more developed countries. But the cost of fraud was significantly higher in the emerging economies.

In addition to establishing good internal controls, what can companies do to prevent fraud? Steven Dkalak, Global Investigations and Forensics leader at PricewaterhouseCoopers, says it's impossible to eliminate economic crime, and controls aren't enough. "The answer lies in establishing a culture that supports control efforts and whistle-blowing with clear ethical guidelines. Companies need to build loyalty to the organization, give employees the confidence to do the right thing, and identify clear sanctions for those who commit fraud, regardless of their position in the company." And they definitely need to have a transparent corporate culture that enables employees to recognize and expose improper conduct.

For more information and to get a full copy of the report, visit www.pwc.com/crimessurvey.
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Author:Williams, Kathy
Publication:Strategic Finance
Date:Nov 1, 2007
Words:519
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