TORONTO, October 16, 2007 — Despite efforts to strengthen and implement controls, over half of Canadian companies report being a victim of economic crime. According to the biennial PricewaterhouseCoopers (PwC) Global Economic Crime Survey the average loss suffered by Canadian companies in 2007 increased significantly to US$3.7 million from US$600,000 in 2005. Globally companies suffered an average loss of US$2.4 million — an increase of US$700,000 from US$1.7 million reported in 2005.
Over the past two years, 62% of Canadian companies surveyed have strengthened existing controls or implemented new measures. Almost all (93%) of Canadian respondents indicated that measures currently present in their company were introduced due to the US Sarbanes-Oxley Act 404 and Canadian Multilateral Instrument 52-109. Yet of these respondents:
- 36% did not have a whistleblower hotline;
- 35% did not have an audit committee;
- 50% lacked adequate fraud risk management techniques;
- 67% did not have specific fraud related training; and
- 20% did not have specific actions planned to deal with economic crime.
“Fraud levels have remained high and have not changed significantly over the past four years, yet companies continue to be confident in their fraud controls,” says Steven Henderson, PwC Partner and National Leader of the firm’s Investigations & Forensic Services practice. “Forty-seven percent of Canadian companies and 52% of global companies surveyed think it is very unlikely that their organization will be a victim of economic crime in the next two years. This gap between perception and reality is concerning. As the results demonstrate, many companies still have work to do to ensure their antifraud regime meets best practices.”
The survey found that asset misappropriation had the highest number of reported incidents globally over the past two years (30%). Yet respondents have perceived asset misappropriation as less of a threat since 2003. Global respondents perceived corruption and bribery to be the most prevalent economic crime in their business (22%). Although Canadian companies correctly perceived asset misappropriation as being the most prevalent, the actual percentage of reported incidents was 43% —much higher than the perceived level of 27%. For Canadian companies, in the case of accounting fraud, money laundering and IP infringement, the perceived level of incidences was greater than the actual number of incidents.
Henderson adds, “In addition to the direct financial losses reported businesses must deal with the 'management costs,' which result from a significant fraud. This can include such things as reallocating management time, which adds to the possible costs of litigation in retroactive action, managing a possible PR campaign and dealing with renewed regulatory oversight and demands.” Global respondents who were victims of fraud estimated these costs to be an average of US$550,000 over the past two years. Canadian respondents, however, estimated these costs to be an average of US$1.2 million.
More than half (59%) of Canadian companies identified financial incentive (i.e. greed) as the key motivation for perpetrators to have committed fraud. Sixty-seven percent of the Canadian companies surveyed that reported incidents of economic crime said employees were the main perpetrators of the most serious fraud offences. Thirty-seven percent of the acts committed were by members of middle management or above, showing a decreasing number of frauds being detected among individuals higher up the corporate ladder. This may be due to the fact that senior management figures are more likely to commit complex economic crimes, such as accounting fraud, which are harder to detect. Conversely, “simple” frauds such as asset misappropriation, which are often easier to detect, can be perpetrated in an unsophisticated manner by staff across the entire organization.
For more information please contact
or visit www.pwc.com/ca/crimesurvey.
About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 140,000 people in 149 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. Now celebrating 100 years of excellence in Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities have more than 5,200 partners and staff in offices across the country.
“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.
