24 May 2005 Press-release
(Beware well-educated men in their forties!)
Rising economic crime poses a growing threat to companies, with nearly half of all organisations worldwide being victims of fraud in the past two years, according to PricewaterhouseCoopers’ Global Economic Crime Survey 2005, conducted in association with Germany’s Martin-Luther University, Halle-Wittenburg. Specifically, 49per cent of surveyed companies in Russia were victims of fraud in the past two years, compared to zero cases of fraud reported in a similar survey in 2003.
Globally, the number of companies reporting fraud increased from 37% to 45% since 2003, a 22% increase. The cost to companies was an average US$1.7 million in losses from “tangible frauds,” those which result in an immediate and direct financial loss. These include asset misappropriation, false pretences and counterfeiting. For Russia this indicator is US$3,1 million.
The biennial survey involved 3,634 companies from 34 countries, including Russia, where 75 companies were surveyed. Conducted by TNS-Emnid on behalf of PricewaterhouseCoopers and Martin-Luther University it revealed that the total losses at 1,227of these companies that could quantify their losses exceeded US$2 billion over the last two years; the number of companies reporting financial losses increased by 50% since 2003.
In the opinion of PricewaterhouseCoopers specialists, the rise in economic crime is a cause for concern. Companies may have a false sense of security when it comes to fraud. More companies are reporting financial crimes, they’re reporting a higher number of incidents, and most cases are detected by accidental means. Economic crime is not something to be taken lightly; companies need to tighten their controls to avoid not only direct financial losses, but also damage to their brand, to staff morale and to relationships with customers, suppliers and other business partners.
According to PricewaterhouseCoopers, the increase around the world in companies reporting fraud since 2003 may be in particular attributed to increased fraud reporting due to tighter regulations requiring increased transparency, and a wider introduction of risk management controls to detect fraud.
The survey also showed increases in the various types of fraud that can affect a company, from asset misappropriation to counterfeiting. Globally, there has been a 140% increase in the number reporting financial misrepresentation, a 133% increase in the number reporting money laundering, and a 71% increase in the number reporting corruption and bribery.
The typical defrauder in the majority of cases is a man (90%), with higher education or a PhD. Russia has more qualified ‘con men’ (78% with higher education) than countries in Central and Eastern Europe (53%) and globally (52%).
Despite the increase in the number of frauds being detected and the effectiveness of risk management systems, there are always individuals or groups who have the incentive and the ability to circumvent or override controls. Companies must not drop their guard, but must constantly develop new controls and build on the loyalty of their employees so that they do not provide an environment in which fraud can flourish.
While the number of fraud reported globally has increased, companies on the whole believe the prevalence of fraud in their business was greater in 2003 than it is today. Only 21% consider it likely that their company will be a victim of fraud over the next five years.
The most common means of detecting fraud was by accident or chance, 34% per cent, followed by internal audit, 26%. In Russia, and also in Central and Eastern Europe, a large portion of fraudulent transactions are revealed by internal anonymous sources, while internal audit assists companies relatively rarely (7% of surveyed Russian companies), which suggests its ineffective application. Then survey goes to confirm the fact that the more control methods and mechanisms a company uses, the greater its chances of discovering fraud and recovering losses.
Notes to Editors:
1. A full copy of the report can be found at: www.pwc.com/crimesurvey
For additional information please contact Natalia Blotskaya, Marketing and Communications Manager with PricewaterhouseCoopers Ukraine, at 490 6777 or natalia.blotskaya@ua.pwc.com
2. Definition of fraud terms used in the PricewaterhouseCoopers Global Economic Crime Survey 2005
- Economic Crime or Fraud: Generic term used in this survey to denote wrongful or criminal activities to or in an organisation, intended to result in the gain of money or benefits for the perpetrator(s).
- Asset Misappropriation (inc. embezzlement): The theft of company assets (including monetary assets/cash or supplies and equipment) by company directors, others in fiduciary positions or an employee for their own benefit.
- False Pretences (inc. confidence game): The intentional action of a perpetrator to deceive those in fiduciary positions and make a personal or financial gain.
- Financial Misrepresentation: Company accounts are altered or presented in such a way that they do not reflect the true value or financial activities of the company.
- Corruption & Bribery (inc. racketeering and extortion): The unlawful use of an official position to gain an advantage in contravention of duty. This can involve the promise of an economic benefit or other favour, the use of intimidation or blackmail. It can also refer to the acceptance of such inducements.
- Insider Trading (only asked to listed companies): Trading of securities by a person inside a company based on non-public information.
- Money Laundering: Actions intended to legitimise the proceeds of crime by disguising their true origin.
- Counterfeiting (inc. product piracy and industrial espionage): This includes the illegal copying and/or distribution of fake goods in breach of patent or copyright, and the creation of false currency notes and coins with the intention of passing them off as genuine. It also includes the illegal acquisition of trade secrets or company information.
3. PricewaterhouseCoopers Global Economic Crime Survey 2005 was conducted on behalf of PricewaterhouseCoopers and the leading criminological scholars at Martin-Luther University, Halle-Wittenberg by TNS-Emnid in Germany.
The survey was conducted in 34 countries between May and September 2005. Over 3,634 computer-assisted telephone interviews were conducted with CEOs, CFOs and other executives who claimed responsibility for crime prevention and detection within their respective companies. More than half of the respondents (52%) are members of the executive board or company management; 43% stated that their main responsibility was in the field of finance.
The companies were randomly selected with preference given to the 1,000 largest companies of a country and the target number of respondents for each country was determined according to its GDP.
4. PricewaterhouseCoopers Dispute Analysis & Investigations 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.
5. PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 130,000 people in 148 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders.
“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
