One in three firms has experienced fraud - PwC

According to PwC’s 2009 Global Economic Crime Survey, which is based on more than 3,000 companies in 54 countries, despite the attention of regulators and companies' investment in controls, fraud remains one of the most problematic issues for businesses around the world.

The survey shows that one third of companies fell victim to economic crime in the past 12 months.

It also revealed that certain types of industries, most notably insurance, financial services and communications, are more prone to fraud than others.

In terms of why people are committing fraud in companies, the PwC survey showed that 68pc of employers believe there are increased incentives or pressures on people during the economic downturn driving them to turn to fraud, while 18pc said there are now more opportunities for employees to commit fraud.

The survey also revealed that a key factor behind the increased incentive for employees to commit fraud is the threat of job security, with 37pc of survey respondents identifying this as a major driver.

The three most common types of fraud likely to be committed by employees are asset misappropriation, accounting fraud and bribery and corruption. Globally, financial statement fraud was found to be the fastest growing form of economic crime and has more than tripled since 2003.

Russia reports high levels of fraud in the PwC survey, with 71pc of organisations there reporting instances. South Africa (62pc), Kenya (57pc) and Canada (56pc) all also report elevated levels of fraud.

Meanwhile, at the other end of the scale, companies in Japan (10pc), Hong Kong (13pc), Turkey (15pc) and the Netherlands (15pc) report low levels of fraud.

The survey also shows that the bigger the organisation, the more likely the instance of fraud.

PwC also found that economic crime is intractable because of the many kinds of fraud and the broad range of employees, including senior executives, who commit them.

The survey says that companies cannot rely on fraud controls alone to detect and deter economic crime. PwC recommends that companies build loyalty to the organisation, give employees the confidence to do the right thing, and put in place clear sanctions for those who commit fraud, regardless of their position in the company.

Irish fraud runs ahead of western Europe
The survey also showed that fraud is a growing issue for Irish business and is running ahead of the western European experience.

Nearly three-quarters (71pc) of Irish respondents victimised by economic crime said that they had experienced an increase in the incidence of economic crime in their businesses in the last year, compared to 40pc for our western European counterparts.

However, PwC noted that this may, in part, be explained by an increased awareness of how serious fraud risk is and an increased level of fraud risk assessments being carried out - if you look for fraud you will find it.

Some 26pc of all Irish respondents said they experienced economic crime in the past 12 months, similar to Western European levels.

However, over half (54pc) of Irish respondents said that the cost of this fraud had increased compared to a third for western Europe.

A fifth of Irish respondents, compared to 8pc of western European respondents, said that the financial loss caused directly by crime in their organisation was more than €3.3m.

In contrast to 40pc of our Western European counterparts, nearly 60pc of Irish survey respondents felt that their organisation was at a greater risk to fraud in the current environment.

Those who believed that opportunities to commit crime have increased cite staff resources being more thinly spread over internal controls (73pc) and management’s attention being focused on survival of the business (55pc) as being the key reasons.

The most common types of fraud in Ireland were asset misappropriation, financial statement fraud and money laundering, though market fraud/collusion and Intellectual Property infringement also featured as significant.

The survey also suggests that more work needs to be done by Irish organisations to deal with fraud. For example, once internal fraud was discovered, only half of the fraudsters were dismissed, compared to 57pc for western European participants, and less than a fifth (17pc) said they took civil action or brought criminal proceedings.

 To read PwC’s 2009 Global Economic Crime Survey , visit www.pwc.com