Budapest, 7 November 2007.
Millions being lost
Almost two-thirds (62%) of companies surveyed in Hungary have fallen victim to economic crime over the past two years – according to the PricewaterhouseCoopers Economic Crime Survey 2007.
PricewaterhouseCoopers biennial Global Economic Crime Survey is one of the most comprehensive assessments of the nature and impact of fraud around the world. Senior representatives of more than 5,400 companies in 40 countries were interviewed, including 77 leading companies within Hungary. The results are surprising and might serve a good lesson for companies.
Across the globe, 43% of companies surveyed reported that they have been the victims of economic crime in the last two years. In Hungary, the overall figure is 62%, which is well above the average for Central and Eastern Europe (CEE) of 50%, and a huge increase when compared to PwC’s last Economic Crime Survey in 2005 (25%).
Nine cases of fraud per company - Most common economic crime is asset misappropriation
On average Hungarian respondents had suffered 8.9 cases of fraud each. The most common economic crimes reported by our respondents in Hungary are asset misappropriation (reported by 48% of companies), followed by IP infringement (26%) and corruption and bribery (17%).
The level of asset misappropriation in Hungary (48%) was considerably higher than the reported levels in CEE (33%) and globally (30%). This is most likely due to the fact that of the surveyed companies in Hungary, almost 12% operate in the retail sector, a much higher proportion than in CEE (5.4%) and globally (5.9%). The retail sector, with its high volumes of often high value and easily moveable goods, is by its very nature, more prone to asset misappropriation than most other industry sectors.
The cost of economic crime
Fraud is extremely expensive for Hungarian companies – economic crime cost the companies surveyed in Hungary almost USD 21 million in the past two years (of which approximately USD 8 million related to asset misappropriation, USD 7.6 million to corruption and bribery, and USD 1 million from IP infringement).
„Average losses per company from economic crime being USD 334,000 in this period”
In addition to the direct losses suffered as a result of reported economic crime, our Hungarian respondents also reported having spent in total an additional USD 4.5 million in managing the economic crimes reported (on average USD 67,000 per incidence).
While the direct reported costs of economic crime (and the managing costs) seem alarming enough, one should not ignore the collateral damage from fraud, i.e. damage to company’s brand and customer trust, to the share price and shareholder trust; to the company’s relationships with its suppliers; and decline in staff morale which can result in high staff turnover and loss of productivity. Although difficult to quantify, collateral damage can be a significant cost to a business. Nearly 67% of Hungarian respondents who suffered fraud reported collateral damage to their business as a result.
Millions being lost
Hungarian companies are poor at recovering losses from economic crime – 65% of companies stated they recovered nothing in relation to the most serious offences suffered (higher than the global average of 58%). Insurance continues to play a small role in recouping losses from economic crime – on average only 13% of the amount lost was recovered under insurance policies by Hungarian respondents.
The typical perpetrator
The typical perpetrators of the most serious offences continue to be male (90%), between the ages of 31 and 50 (80%), and educated up to graduate level (64%).
In Hungary, members of senior management were responsible for 27% of reported frauds whilst middle management were responsible for 20% of internally committed frauds.
„ Most of the internal perpetrators tend to commit their crime during the first two years of entering into their new positions”
Naturally, such fraudsters tend to have an opportunity to use their management authority to override controls designed to detect fraud.
Over one third (34%) of the perpetrators of the most serious offences were employed by the defrauded entity. An external party was involved in more than 90% of all of the reported fraud cases, serious or non-serious, indicating frequent collaboration between internal and external fraudsters.
Fraud in the future - Serious and intractable problem
On a global scale, levels of economic crime have not dropped significantly over the course of the decade and despite that, companies continue to be confident that their controls will limit their exposure to fraud in the future. The same goes for Hungary, where despite almost two thirds of companies surveyed stating that they had suffered from economic crime in the past two years, nearly 82% of companies believe that it is unlikely that their organisation would become victims of economic crime in the next two years. In our opinion this may well be a sign of over-confidence, especially given the large proportion of fraud which was detected by chance…
END
Notes to Editors:
Methodology – Senior representatives were interviewed of more than 5,400 companies in 40 countries, including 77 leading companies within Hungary.
To ensure the complete confidentiality of responses, the survey was conducted on behalf of PwC by the internationally renowned market and social research institute, TNS Emnid. In subsequent data analysis, we cooperated with Prof. Dr. Kai Bussmann, Chair of Criminology & Penal Law at Martin-Luther University in Halle-Wittenberg, as well as the independent Economic Crime Research Centre at the Martin-Luther University.
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