44% of Romanian companies are victims of economic crime, PricewaterhouseCoopers finds

Globally, 50% More Companies Report Financial Losses Since 2003

Bucharest , 7 June 2006 – 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. Specifically, 44 percent of Romanian companies surveyed experienced fraud in the past two years.

Globally, the number of companies reporting fraud increased from 37 percent to 45 percent since 2003, a 22 percent 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.

The biennial survey involved 3,634 companies from 34 countries including Romania and was conducted in association with Germany 's Martin-Luther University , Halle-Wittenberg. It revealed that the total losses at 1,227 of 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 percent since 2003.

Companies around the world, on average, reported suffering eight fraud incidents since 2003. The larger the company, the more likely it experienced and detected acts of fraud. Regardless of size, no company or industry, regulated or unregulated, was immune from fraud. The global and regional findings point to future possible trends in the Romanian market. Bigger companies* 1 worldwide have reported12 incidents of fraud, while in Romania , on average, there were reported eight incidents during the past two years.

Despite the increase in the number of companies reporting fraud worldwide, only 10% of the Romanian companies participating in the survey believe that their organizations will be victims of fraud over the next five years,” said Speranta Munteanu, Director, Advisory Services. “Given that most fraud (67%) in Romania is detected by chance (i.e. tip-offs) underlines that reliance on luck is no basis for a strong anti-fraud regime. The earlier the crime is discovered, the lower the risk of damage and the higher the probability of recovering lost assets.”

An Increase in Fraud

According to PricewaterhouseCoopers, the 22 percent increase in companies around the world reporting fraud since 2003 may be attributed to:

More incidents of fraud being committed.

Increased fraud reporting due to tighter regulations requiring increased transparency.

Introduction of risk management controls to detect fraud.

A “confess and remedy” environment among regulators that encourages fraud reporting.

Despite the growing number of companies reporting fraud around the world, nearly 80 percent did not consider it likely that their company will suffer fraud over the next five years.

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 percent increase in the number reporting financial misrepresentation, a 133 percent increase in the number reporting money laundering, and a 71 percent increase in the number reporting corruption and bribery.

espite the fact that asset misappropriation is the most reported economic crime globally and regionally, Romanian companies do not perceive it as a major threat and do not reported it as the most prevalent fraud. In Romania , the typical perpetrator has similar characteristics to the global and regional one: male (93 percent), between the ages of 31 and 40 (37 percent), educated at postgraduate level (43 percent) and holding senior managerial positions (40 percent of the cases).

The Cost of Economic Crime

The average cost of economic crime per company from tangible frauds in Romania was US$ 223,577 in the past two years. When comparing this figure to the average regional figure of US$ 926,245 and the global figure of US$ 1,735,913, the average amount lost by Romanian companies may seem rather insignificant. However, the difference in reported figures calls for attention to the ability of Romanian companies to identify and quantify the levels and losses from frauds.

While quantifying the financial damage from fraud is hard, the ‘collateral' damage *2 can be even harder to quantify given its nature. Worryingly, Romanian companies report ‘collateral' damage as affecting mostly their business relations while its impact on their staff morale and loss of company's reputation are overlooked.

“According to the survey findings, companies undergoing dynamic periods of change are more likely to suffer from fraud. Given that 77% of Romanian companies reported to have experienced changes in the past two years highlights that phases of instability can weaken control and provide unexpected opportunities for fraud. 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,” said Speranta Munteanu, Director, Advisory Services.

The Illusion of Safety

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 percent 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 percent (67 percent in Romania ), followed by internal audit, 26 percent (only 4 percent in Romania ).

In Romania , the amount of fraud detected through risk management systems is greater than the global average. However, this finding is valid only for the companies that have such a system in place. Moreover, the survey showed that the more controls a company has, the better chances of detecting fraud and recovering losses.

Notes to Editors:

Definition of fraud terms used in the PricewaterhouseCoopers Global Economic Crime Survey

Economic Crime or Fraud: Generic term used in this survey to denote wrongful or criminal

Asset Misappropriation (inc. embezzlement): The theft of company assets (including

False Pretences (inc. confidence game): The intentional action of a perpetrator to deceive

Financial Misrepresentation: Company accounts are altered or presented in such a way

Corruption & Bribery (inc. racketeering and extortion): The unlawful use of an official

Insider Trading (only asked to listed companies): Trading of securities by a person inside a

Money Laundering: Actions intended to legitimise the proceeds of crime by disguising their

Counterfeiting (inc. product piracy and industrial espionage): This includes the illegal

PricewaterhouseCoopers Global Economic Crime Survey 2005 was conducted on behalf of

The survey was conducted in 34 countries between May and September 2005. Over 3,634

The companies were randomly selected with preference given to the 1,000 largest companies of a

The Romanian Report was prepared by Speranta Munteanu, Director, and Mihai Baibarac,

PricewaterhouseCoopers Dispute Analysis & Investigations practice operates across over 50

PricewaterhouseCoopers ( www.pwc.com /ro) provides industry-focused assurance, tax and