Economic crimes hit 37 pc global cos
DOW JONES, LONDON, July 8
Economic crime continues to be a menace to businesses throughout the world and over a third of companies were victims of fraud in the last two years, suffering an average loss of over $2 million, according to PricewaterhouseCoopers Global Economic Crime Survey 2003. Worldwide the highest levels of economic crime were reported in Africa (51%) and North America (41%). The survey, undertaken in association with Wilmer, Cutler & Pickering for the US, is one of the most comprehensive assessments of the nature and impact of fraud around the world. Based on over 3600 interviews in 50 countries with CEOs, CFOs and those responsible for detecting/preventing economic crime, it reveals: Larger companies, with over 1000 employees in a country, are most vulnerable to fraud with 52% reporting economic crime in the past two years: this compares to only 37% of smaller companies reporting fraud. Their investment in unfamiliar overseas markets, the devolution of management control and investment in superior fraud risk management systems help to explain higher detection rates in larger businesses. Financial services firms reported more incidence of fraud than any other industry. One in six banks, for example, reported uncovering money laundering during the previous two years as improved control and compliance systems, and ongoing efforts to raise awareness of money laundering, led to higher detection rates. The specific nature of the financial services industry, providing access to complex financial transactions and significant quantities of physical assets, has proved to be an obvious target for fraudsters. The financial loss from economic crime is notoriously difficult to quantify, especially for less tangible economic crimes such as cybercrime. One third of the companies that had reported fraud were unable to put a value on the crime. According to survey the real financial cost of fraud extends beyond the average loss of US$2.2 million. Not only are such losses rarely recovered - only 9% of companies which suffered a fraud managed to recover more than 80% of their losses - but they are unlikely to be insured: just over half of the businesses surveyed had taken out insurance against fraud losses. The cost cannot be measured solely in financial terms but in the context of wider collateral damage such as weakened staff morale, tarnished reputation and brand, and damaged business relationships. One third of businesses reported long-term operational effects of economic crime and 47% stated that fraud had a long-standing impact on the company share price. A majority of businesses are inadequately prepared to manage and prevent economic crime. For example, less than 30% of businesses have any fraud-related training for senior management that have responsibility for handling economic crime issues. Currently, too many companies rely on more intangible prevention tools such as codes of conduct and ethical policies that, although a foundation for good practice, on their own can be poorly understood and difficult to enforce. In contrast, companies that have actually suffered a fraud are more likely to take practical and effective measures to combat fraud and mitigate its impact. For example, by taking out insurance cover against fraud related losses, companies reported being 3 times more likely to recover more than 60% of their losses. According to the survey a preventative anti-fraud regime should consist of: an ongoing assessment of the real risks and vulnerabilities to fraud within an organisation; senior management actively communicating a company’s fraud policy; developing policies to encourage and protect whistleblowers and development of a robust fraud response plan which is based on worst-case scenarios. Asset misappropriation, generally the easiest to detect as it involves the theft of tangible assets with a defined value, is the single most commonly reported economic crime, with 60% of those reporting frauds claiming that this was among them. Although there was a greater perception financial misrepresentation’s prevalence than its actual incidence, one in ten organisations reported a case of financial misrepresentation in the past two years. Looking to the future, a majority of companies expect fraud to increase in the next five years and 35% of companies expect their greatest fraud risk to continue to be asset misappropriation, followed closely by cybercrime.
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