Improving trends or underestimated threats?

Economic crime in Hungary and worldwide

Economic crime continues to be a serious issue affecting organisations worldwide, according to PwC’s Global Economic Crime Survey 2016. This year’s Hungarian results show that the incidence of economic crime has declined marginally by 1% compared to the previous survey, and by 5% compared to seven years ago. The percentage of respondents reporting incidences of economic crime has decreased not only in Hungary, but also in the CEE region (by 1%) and globally (by 5%). But this small decrease is actually masking a worrying trend: that economic crime is changing significantly, but that detection and controls programmes are not keeping up with the pace of change.

“In a rapidly evolving economic and technological environment, with the adoption of new business models, increasingly complex and sophisticated forms of fraud are emerging. The Hungarian results paint a more optimistic picture than global and regional figures about the incidence of fraud. This could be because some companies have been compromised without even knowing it, while others may be overconfident about the robustness of their existing control environment,” said Tibor Hurton, Manager at PwC Hungary’s Forensic Services group.

In Hungary, the five most commonly reported types of economic crime are asset misappropriation (46%), bribery and corruption (38%), tax fraud (21%), cybercrime (17%), and procurement fraud (17%). Asset misappropriation has historically been regarded as the easiest of frauds to detect, so the levels of this crime reported in our survey are hardly surprising.

The share of fraud is heavily weighted towards internal perpetrators (46%), as opposed to external perpetrators (33%). According to the aggregated regional results, the typical internal fraudster is a male university or college graduate aged between 31 and 40 who has been with the company for three to five years, and originates from junior or middle management. In most cases, external perpetrators are customers.

Cybercrime

Less than one-fifth (17%) of the respondents in Hungary that have suffered an economic crime reported that they were victims of cybercrime. This is less than the regional average (22%) and far below the global average (32%), which raises red flags that companies in Hungary might have been compromised without even knowing it.

One of the most important takeaways from this survey is the change in perception of cybercrime – cybercrime is no longer just an IT problem, it should rather be considered a fundamental business problem. As a result of rapid technological advances, cybercrime encompasses more than just computers – the appliances at risk range from mobile devices to gadgets interconnected in the cloud. However, 55% of respondents in Hungary think the risk of cybercrime has remained the same. According to PwC’s experts, Hungarian companies underestimate the risk that they may become victims of cybercrime, despite the fact that half of the respondents that suffered economic crime have reported losses of $50,000 or more.

“Our survey respondents consistently note wider collateral damage from business disruptions, remedial measures, investigative and preventative interventions, regulatory fines, legal fees — and, critically, damage to morale and reputation — as having a significant impact on long-term business performance. These kinds of losses are, of course, not always quantifiable, and can over time dwarf the relatively shorter-term impact of financial losses,” said Csaba Polacsek, Director of Financial and Transaction Advisory Services at PwC Hungary.

Detection methods

A positive finding compared to previous years is that an increasing number of fraud incidents is detected via systematic mechanisms: 42% of Hungarian respondents said that the fraud was detected by corporate controls (compared to 54% in the CEE region and 47% globally). However, still about one in five fraud cases (21%) is detected beyond the influence of management.

“Rapid detection of fraud is critical for companies to minimize potential losses. Technological advances offer new techniques to detect fraud and mitigate risks. These techniques include risk-based due diligence, focused fraud and corruption risk management, intelligent fraud monitoring, anonymous ways to report economic crime, and comprehensive fraud prevention measures,” added Mr. Polacsek.

Ethics and compliance programmes

Another positive development is that 81% of survey participants have a formal ethics and compliance programme, which is in line with the CEE and global average (82%). Over three quarters (76%) of respondents said that their code of conduct covers key risks and policy areas, and 88% reported that the organisational values are clearly stated and understood. Sixty percent of organisations regularly provide training on their code of conduct. These relatively high numbers give reason for optimism.

“However, in terms of compliance, there is still room for improvement for Hungarian companies. It is worth recalling that while compliance does not readily generate revenue, it ultimately affects the bottom line: by assessing and managing risks, it is an important safeguard against losses. Successful compliance also requires involving the broadest possible range of staff already in the implementation phase,” said Mr. Hurton.

Notes:

Methodology: The survey was conducted from July till December 2015. We surveyed 6337 business leaders globally and 95 in Hungary by using online questionnaires. The TOP 5 industries presented by the respondents in Hungary are Financial Services, Manufacturing, Retail and Consumer, Pharmaceuticals, Automotive.