Thursday, October 18, 2007

Fraud Tops List of Business Issues

PricewaterhouseCoopers' Global Economic Crime Survey 2007 concludes that corporate fraud remains a leading problem for businesses worldwide. The report issued October 16 summarized the results of a survey conducted in 40 countries between May and September 2007. 5,500 corporate officers who claimed to be responsible for crime prevention and detection within their companies responded to the survey.

The report concludes that despite regulatory responses and increased internal controls in the wake of recent corporate fraud scandals in the US, fraud remains one of the leading issues for corporations, with nearly half of all companies experiencing corporate crime within the last two years. The most reported economic crimes were asset misappropriation, accounting fraud, corruption and bribery, money laundering, and intellectual property infringement. The average loss from fraud increased around 40 percent from the last survey to nearly $2.4 million. Survey respondents in emerging markets said that corruption was their number one concern. As for IP infringement, 44 percent of cases worldwide that involved an overseas company involved a Chinese perpetrator.

In the US, Sarbanes-Oxley legislation appears to have had some effect on accounting fraud. It decreased to 13 percent from a prior rate of 36 percent. 71 percent of US respondents reported that Sarbanes-Oxley was at least marginally effective in exposing or deterring certain kinds of economic crime.

Some findings confirm popular ideas about corporate misbehavior. The typical perpetrator of economic crime is male, middle aged, highly educated and working in mid or senior level corporate management. The level of damage is directly proportional to the seniority of the perpetrator. The report concluded that systematic controls alone will not succeed in curtailing fraud. "Companies need to 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." Good luck with that.

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