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The current fraud environment in the Czech Republic

Zobrazit stránku: Česky

• Economic crime continues to be a serious issue affecting organisations worldwide, across the CEE and in the Czech Republic. 29% of organisations in the Czech Republic experienced one or more economic crimes in the past 12 months; slightly below the average for the CEE (30%) and globally (34%). For the Czech Republic, this represents an increase by 5 percentage points compared to our previous survey.

• Asset misappropriation remains the most common type of economic crime reported in the Czech Republic (75%) and prevailing also in the CEE (69%) and globally (72%). This is not surprising, given the fact that it is easier to detect compared to other types of economic crimes. Together with cybercrime, asset misappropriation appears to be the main contributor to the overall increase in percentage of Czech organisations affected by economic crime.

• The next most common type of fraud in the Czech Republic is accounting fraud (21%) together with bribery and corruption (21%). While the reported incidents of both these types of fraud decreased in comparison with 2009, we should be careful in drawing conclusions that are too optimistic. Our experience shows that the actual incidence of bribery and corruption is likely to be higher as this type of crime is difficult to identify and often goes undetected. As for accounting fraud, the significant decrease may have been caused by slightly lower pressure on management to manipulate financial statements due to partial recovery from the difficult times during the period when this survey was carried out. However, given recent developments in the world economy, and Europe in particular, the pressure may quickly increase to even higher levels.

• Fraud continues to be costly: 38% of organisations who suffered economic crime lost over USD 100,000, including 8% suffering a loss of more than USD 5 million as a result of fraud. However, the fallout from fraud is not simply the direct cost. Although difficult to quantify, collateral damage may be just as damaging: 67% of Czech organisations highlighted the negative impact on employee morale as the most significant indirect cost of economic crime in the last 12 months.

• 67% of the economic crimes Czech organisations experienced were carried out by internal fraudsters. This number has increased significantly in comparison to 2009 (50%). Customers (43%) and vendors (29%) were identified as the main perpetrators of external fraud.

• Our survey shows that Czech organisations are not afraid to take swift action against fraud perpetrators, whether internal or external: In the case of internal perpetrators, dismissal was the most frequent action taken in the Czech Republic, in 81% of cases. Similarly, when external fraud is detected, the business relationship was ceased in 71% of cases; this represents a significant increase compared to 2009 (30%) and is well above CEE (53%) and global (39%) averages. While the low level of tolerance to fraudsters is definitely a positive sign, we would recommend that organisations increase their efforts on the prevention front: knowing your employees and your business partners prior to engaging with them is less costly than dealing with the consequences of fraud.

• It is encouraging that an increasing number of fraud incidents is being detected via systematic mechanisms: 38% of Czech organisations have detected fraud through either fraud risk management or regular internal audit procedures (in 2009: 35%). It seems that Czech organisations are increasingly less willing to rely on chance to detect fraud. However, with 1 out of 5 frauds still being detected beyond the influence of management, there continues to be room for improvement in this area:

  • 33% of Czech organisations surveyed reported that they had not performed any fraud risk assessment in the last 12 months. The main reasons for Czech organisations not to perform fraud risk assessment were the perceived lack of value (57%) and lack of knowledge about what risk fraud assessment involves (21%).
  • We have also noted that 71% of Czech organisations do not employ a whistle-blowing mechanism. This is very surprising as in our experience the anonymous whistle-blowing mechanism helps to discover fraud in most cases when other means of fraud detection prove ineffective.