1. Singapore, 16 October 2007 – Despite heightened efforts at regulation and control, fraud remains a major threat to companies around the world. In Singapore, 19% of companies surveyed have been victims of economic crime in the past two years, an increase from 16% in the 2005 survey. Globally, there was a slight decrease from 45% in 2005 to 43% in 2007 while in Asia-Pacific, the level of economic crime remained unchanged at 39%, according to PricewaterhouseCoopers’ (PwC) 2007 Global Economic Crime Survey - Economic crime: people, culture and controls.
2. “It is interesting to note that significant investment made by companies in fraud controls did not result in a dramatic decrease in the economic crime level. This could be due to the “Fraud Controls Paradox” where an increase in controls may lead to an increase in the detection of fraud cases in the short term. If you do not look you do not see. Conversely, once you know what to look for and start looking for it, you are more likely to find it. Over time, as potential fraudsters become aware of the controls in place and are deterred from committing fraud, the number of fraud cases will decrease,” explains Subramaniam Iyer, Advisory partner, PwC Singapore.
3. Globally, the average direct financial losses to companies rose over 40% to US$2.4 million from US$1.7million in the past two years. Of the total losses of US$4.2 billion reported by companies over two years, 45% related to companies in emerging markets, such as Brazil, Mexico, Russia, India, China, Indonesia and Turkey.
4. Singapore companies continue to perceive accounting fraud (28%) and asset misappropriation (26%) as the two most prevalent types of economic crime, followed by Intellectual Property (IP) infringement (16%), corruption and bribery (14%) and money laundering (10%).
5. “There was a four-fold increase in the perception of IP infringement as a prevalent economic crime since 2005. This may be due to the greater awareness of the lack of IP protection as Singapore companies expand abroad and the increase in cases reported in the media of grey market activities, counterfeit goods and illegal software downloads,” adds Subra Iyer.
6. Of those responsible for committing fraud, 85% are male, most often between the ages of 31 and 50, with half having college educations or advanced degrees. More than half were employed by the defrauded company, 26% in senior management, and 43% had more than five years with the company.
7. According to the survey, reasons cited to explain why individuals committed fraud included financial incentives (57%), temptation (44%), expensive lifestyle (36%), and career disappointment (12%). Some corporate causes cited include weak controls in about a third of cases, followed by a low level of commitment to the company (34%), ability to use authority to override controls (19%), relative anonymity (17%) and lack of clarity about the company's ethics (14%).
8. "Three elements must be present for a fraudster to set to work – the opportunity, the incentive/motive and the fraudster’s ability to rationalise his own actions,” Subra Iyer says. “Need and greed seem to be very common personal reasons for fraudsters committing fraud (that is their incentive and ability to rationalise their actions to themselves). When you couple this incentive and self rationalisation with the third element, the opportunity to commit fraud, even the best control systems cannot always prove effective in detecting and preventing fraud.”
9. Controls alone will never be sufficient to combat economic crime. The answer lies in establishing a culture that supports control efforts and whistle blowing with clear ethical guidelines. Companies need to build loyalty to the organization, give employees the confidence to do the right thing and identify clear sanctions for those who commit fraud, regardless of their position in the company. Indeed culture is the best way of dealing with the element of rationalisation by the fraudster.
10. 43% of fraud was initially detected via a whistleblower hotline or other tip off -- while the most effective control measure -- internal audit -- was the initial detection method in 19% of reported cases, highlighting the importance of a transparent corporate culture that enables employees to recognize and expose improper conduct.
11. Fraud has always been, and will always be, a real threat. Levels of economic crime have not dropped over the course of this decade and companies continue to be confident that their controls will limit their exposure to fraud in the future.
12. However, as the 2007 survey has shown, controls alone will not be sufficient in mitigating the risk of fraud. Instead, companies with an established culture that supports those controls with clear and ethical guidelines, have a better chance at fraud prevention.
13. “The fight against fraud is a constant struggle. Our 2007 survey continues to show that in order to assess and manage risk, a constant re-evaluation of all fraud risk management activities and the culture that supports this in every market of operation is vital to maintain a clear competitive advantage and the confidence of all stakeholders. As with all crimes and unwanted business risks, a move from after-the-fact detection and reaction towards consistent and effective prevention is the most valuable move a company can take,” says Subra Iyer.