London, 20 July 2006 - More than a third (37%) of chemical companies have experienced economic crime and need to tighten controls to combat this threat and recover losses, according to the latest PricewaterhouseCoopers Global Economic Crime Survey. Chemical companies suffered from an average of eight incidents in the past two years, costing an average of nearly USD$600,000 per chemical company.
Since the last PricewaterhouseCoopers survey two years ago, the chemicals industry has experienced a slight reduction in economic crime; the number of companies reporting instances dropped 3 percent, from 40% to 37%. Reports of corruption and bribery, however, more than doubled to almost 30 percent and respondents in Western Europe reported a particularly high rate of counterfeiting - 39% - more than double the rate reported in other regions. In the chemicals industry, most instances of counterfeiting concern sensitive data such as production methods and formulas.
Asset misappropriation, such as payments to ghost employees, fictitious vendors, over-billing schemes and unauthorised overtime schemes, was by far the most common type of economic crime, being named by 60 percent of respondents who have suffered a fraud event in the last two years.
Saverio Fato, global chemicals leader, PricewaterhouseCoopers, commented:
“In the past, many chemicals industry executives were under the misconception that fraud ‘can’t happen here in my company’. Recently however, the chemicals industry has seen signs of a culture shift; understanding that fraud does indeed happen, and that its results have the potential to damage a company’s financial well being, competitive advantage, employee morale, and vendor/supplier relationships.”
Chemical companies are already starting to recognise the need to improve internal controls - 45% expressed a high level of willingness to improve these measures over the course of the next two years. The same percentage of respondents is also looking to beef up compliance programmes – an encouraging sign that the industry is taking economic crime seriously.
Despite recent progress economic crime remains very difficult to detect. Although most companies report a very high level of satisfaction with their various fraud detection measures, more than 43% of frauds in the chemicals industry are still detected by chance. Internal auditors also uncovered a number of frauds (26%), indicating that companies should ensure that their internal audit departments have comprehensive fraud awareness training. A robust internal audit function may also serve as a deterrent to would-be offenders.
The survey results show that the average cost of tangible fraud (asset misappropriation, false pretences and counterfeiting) per company in the chemicals industry is just under USD$600,000. However in many cases the impact of fraud can have broader consequences. Particularly in the chemicals industry, economic crime can put a company at a competitive disadvantage; for example if competitors are able to replicate a patented production process. Chemical companies tend to be discreet about economic crime – in almost a third of cases the serious incidents of fraud discussed by survey respondents did not become known outside of the company.
Claudia Nestler, partner and Global Economic Crime Survey leader, PricewaterhouseCoopers, concluded:
“Fraud is being recognised and reported more and more often but some chemical companies have a false sense of security when it comes to economic crime. Only 17% of respondents feel their organisation is likely or very likely to suffer from economic crime in the next five years. Progress to tighten internal controls and develop codes of conduct has been made but many chemical companies need to do more to implement concrete fraud prevention measures such as comprehensive fraud awareness training.”
Notes to Editor
- The Global Economic Crime Survey report on the chemicals industry is available to download at Crime Survey.
- Over 160 chemicals companies based in 30 countries took part in the survey as part of a wider cross-sector study for which over 3500 executives responsible for detecting economic fraud were interviewed. It was conducted on behalf of PricewaterhouseCoopers and leading criminological scholars at Martin-Luther, Halle-Wittenberg by TNS-Emnid in Germany.
- The member firms of the PricewaterhouseCoopers network provide industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in 148 countries across our network work collaboratively using Connected Thinking to develop fresh perspectives and practical advice.
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