Bangkok--Nov 29--PRIMEZONE MEDIA NETWORK
PricewaterhouseCoopers Finds 50% More Companies Report Financial Losses Since 2003
Rising economic crime poses a growing threat to companies, with nearly half of all organizations worldwide being victims of fraud in the past two yeas, according to PricewaterhouseCoopers’ Global Economic Crime Survey 2005. The number of companies reporting fraud increased from 37 percent to 45 percent since 2003, a 22 percent increase. The cost to companies was an average US$1.7 million in losses from “tangible frauds,” those which result in an immediate and direct financial loss. These include asset misappropriation, false pretenses and counterfeiting.
The biennial survey involved 3,634 companies from 34 countries and was conducted in association with Germany’s Martin-Luther University, Halle-Wittenberg, It revealed that the total losses at 1,227 of these companies that could quantify their losses exceeded US$2 billion over the last two years; the number of companies reporting financial losses increased by 50 percent since 2003.
Companies around the world, on average, reported suffering eight fraud incidents since 2003. The larger the company, the more likely it experienced and detected acts of fraud. Larger companies reported an average of 12 incidents. Regardless of size, no company or industry, regulated or unregulated, was immune from fraud. Depending on industry, from 38 percent to 60 percent of surveyed companies reported significant frauds.
“The rise in economic crime is cause for concern. Companies may have a false sense of security when it comes to fraud. More companies are reporting financial crimes, they’re reporting a higher number of incidents, and most cases are detected by accidental means,” said Steven Skalak, Global Investigations Leader, PricewaterhouseCoopers. “Economic crime is not some thing to be taken lightly; companies need to tighten their controls to avoid not only direct financial losses, but also damage to their brand, to staff morale and to relationships with customers, suppliers and other business partners.”
An Increase in Fraud
According to PricewaterhouseCoopers, the 22 percent increase in companies reporting fraud since 2003 may be attributed to:
-- More incidents of fraud being committed.
--Increased fraud reporting due to tighter regulations requiring increased transparency.
--Introduction of risk management controls to detect fraud.
--A “confess and remedy” environment among regulators that encourages fraud reporting.
Despite the growing number of companies reporting fraud, nearly 80 percent did not consider it likely that their company will suffer fraud over the next five years.
The survey also showed increased in the various types of fraud that can affect a company, from asset misappropriation to counterfeiting. In particular, there has been a 140 percent increase in the number reporting financial misrepresentation, a 133 percent increase in the number reporting money laundering, and a 71 percent increase in the number reporting corruption and bribery.
Nearly 90 percent of those responsible for fraud are male, between the ages of 31 and 40, with college educations or higher degrees. Half were employed the defrauded company, almost one quarter of them in senior management. And of those who were caught, the most common means of detection was through accident or chance (34 percent).
The Cost of Economic Crime
In addition to the financial losses, 40 percent of companies reported suffering significant “collateral damage” to the day-to-day operations and success of their businesses.
Of those, 43 percent suffered damage to their brand; 42 percent to their relations with other businesses (including suppliers and contractors) ; and 54 percent to staff morale.
“Despite the increase in the number of frauds being detected and the effectiveness of risk management systems, there are always individuals or groups who have the incentive and the ability to circumvent or override controls. Companies must not drop their quard, but must constantly develop new controls and build on the loyalty of their employees so that they do not provide an environment in which fraud can flourish,” said Skalak.
The Illusion of Safety
While the number of fraud reported has increased, companies on the whole believe the prevalence of fraud in their business was greater in 2003 than it is today. Only 21 percent consider it likely that their company will be a victim of fraud over the next five years. The most common means of detecting fraud was by accident or chance, 34 percent, followed by internal audit, 26 percent.
The more controls a company has, better its chances of detecting fraud and recovering losses, the survey confirmed. Companies with a larger number of controls were better at discovering how much more damaging fraud was, uncovering three times as many losses as those with less controls. Additionally, companies with more than five fraud.
control measures were better able to recover their losses, (52 percent) than those with less than five control measures (43 percent). The internal audit is the most successful of all processes and controls in detecting fraud.
Notes to Editors:
1.Definition of fraud terms used in the PricewaterhouseCoopers Global Economic Crime Survey 2005
--Economic Grime or Fraud: Geneic term used in this survey to denote wrongful or criminal activities to or an organisation, intended to result in the gain of money or benefits for the perpetrator(s).
--Asset Misappropriation (inc. embezzlement): The theft of company assets (including monetary assets/cash or supplies and equipment by company directors, others in fiduciary positions or an employee for their own benefit.
-False Preteses (inc. confidence game): The intentional action of a perpetrator to deceive those in fiduciary positions and make a personal or financial gain.
--Financial Misrepresentation: Company accounts are altered or presented in such a way that they do not reflect the true value or financial activities of the company.
--Corruption & Bribery (incl.racketeering and extortion): The unlawful use of an official position to gain an advantage in contravention of duty. This can involve the promise of an economic benefit or other favour, the use of intimidation or blackmail. It can also refer to the acceptance of such inducements.
-Insider Trading (only asked to listed companies): Trading of securities by a person inside a company based on non-public information.
--Money Laundering: Actions intended to legitimize the proceeds of crime by disguising their true origin.
--Counterfeiting (inc.product piracy and industrial espionage): This includes the illegal copying and/or distribution of fake goods in breach of patent or copyright, and the creation of false currency notes and coins with the intention of passing them off as genuine. It also includes the illegal acquisition of trade secrets or company information.
2.PricewaterhouseCoopers Global Economic Crim Survey 2005 was conducted on behalf of PricewaterhouseCoopers and the leading criminological scholars at Martin-Luther University, Halle-Wittenberg by TNS-Emnid in Germany.
The survey was conducted in 34 countries between May and September 2005. Over 3,634 computer-assisted telephone interviews were conducted with CEO’s CFOs and other executives who claimed responsibility for crime prevention and detection within their respective companies. More than half of the respondents (52 percent) are members of the executive board or company management; 43 percent stated that their main responsibility was in the field of finance.
The companies were randomly selected with preference given to the 1,000 largest companies of a country and the target number of respondents for each country was determined according to its GDP.
A full copy of the report can be found at : www.pwc.com/crimesurvey
3.PricewaterhouseCoopers Dispute Analysis & Investigations practice operates across over 50 countries and can deploy experienced and knowledgeable teams to manage and mitigate the threat of corporate crimes and achieve the best possible outcomes. Using in-depth forensic accounting an corporate investigation skills allows clients to continue their business, recover lost funds, and halt further economic the many risks associated with fraud, abuse and dishonesty comes from forensic accountancy, forensic IT and private sector investigations as well as regulatory work and law enforcement.
4.PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 130,000 people in 148 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
Mike Ascolese
PricewaterhouseCoopers
[email protected]
+1.646471.8106
Kate Alexander
Porter Novelli for PricewaterhouseCoopers
[email protected]
+1.212.601.8286. End.