For additional information contact:
Rick Helsby, Partner, PricewaterhouseCoopers, tel. +48 502 184 501
or
Giedrius Čiupaila, Head of Marketing & Communications, PricewaterhouseCoopers, tel. +370 (5) 239 2300
8 July 2003
Economic crime continues to be a menace to businesses throughout the world and over a third of companies in Central and Eastern Europe were victims of fraud in the last two years, according to PricewaterhouseCoopers Global Economic Crime Survey 2003. Worldwide the highest levels of economic crime were reported in Africa (51%) and North America (41%). In comparison to the previous European research in 2001, the share of organisations in Central and Eastern Europe reporting fraud has grown from 26% to 37%.
PricewaterhouseCoopers Global Economic Crime Survey 2003 is one of the most comprehensive assessments of the nature and impact of fraud around the world. Over 3600 interviews were conducted in 50 countries (including 25 interviews in the Baltics) with CEOs, CFOs and those responsible for detecting/preventing economic crime, and the survey revealed the following key findings.
Which companies are most at risk from fraud
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.
Financial services firms (banks and insurance companies) 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.
Rick Helsby, global leader of the Investigations and Forensic Services practice at PricewaterhouseCoopers, said:
"Fraud can have a material and lasting impact on businesses, their share price and reputation. Companies which have been fortunate enough not to have suffered from fraud should learn from those companies which have by investing now in a comprehensive fraud risk management plan in order to withstand the persistent threat of economic crime."
What is the real cost of economic crime
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 PricewaterhouseCoopers 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 real cost of fraud 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.
Are businesses well prepared to manage fraud risk?
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 are not sufficient.
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 PricewaterhouseCoopers 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.
Which types of economic crime are most prevalent
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. In Central and Eastern Europe, of those who have suffered economic crime, 44% experienced asset misappropriation, 19% financial misrepresentation and 15% corruption and bribery.
Looking to the future, a majority of companies worldwide 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. However, companies in Central and Eastern Europe project that corruption and bribery will be the most common economic crime in the region (27% of respondents) as well as assets misappropriation (23%) and financial misrepresentation (21%).
Notes to Editor
PricewaterhouseCoopers Global Economic Crime Survey 2003 is the result of 3623 interviews with CEOs, CFOs or those responsible for detecting/preventing economic crime at the top 1000 companies in 50 countries. The target number of respondents for each country was determined according to its GDP. As an indicator survey, a random sample from each country was surveyed as to whether or not they had experienced fraud. For the core survey, a sample of companies that had both suffered and not suffered economic crime was interviewed in each country. This was to ensure that an in-depth analysis of economic crime issues could be presented.
PricewaterhouseCoopers Investigations & Forensic Services 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 and corporate investigation skills allows clients to continue their business, recover lost funds, and halt further economic losses. The expertise to assist organisations investigate and manage the many risks associated with fraud, abuse and dishonesty comes from the experience of the international staff and their backgrounds in forensic accountancy, forensic IT and private sector investigations as well as regulatory work and law enforcement.
The US element of the PricewaterhouseCoopers global economic crime survey 2003 was commissioned and published by the law firm Wilmer Cutler & Pickering.
PricewaterhouseCoopers (www.pwc.com) is the world's largest professional services organisation. Drawing on the knowledge and skills of more than 125,000 people in 142 countries, we build relationships by providing services based on quality and integrity.
PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
