Overall, these resources detect 86% of crimes, with half of all economic crime detection came from internal or external investigations and audits and 36% from whistleblowers. This is good news as economic crime becomes more prevalent, based on a third of US respondents to the PricewaterhouseCoopers’ Global Economic Crime Survey 2003 survey reported significant economic crimes during the previous two years.
Despite the good news coming from early detection of possible fraud, confidence in controls appears to be misplaced in comparison with how economic crimes are actually discovered among the survey’s US responses. Almost all of respondents (95%) believe they have adequate risk management systems. Yet respondents reported that risk management systems detected only about one-third of the instances of economic crime, suggesting that internal systems are co-opted, circumvented or overridden in a majority of instances of economic crime.
Additionally, even though one-third of respondents stressed the company’s board had ultimate responsibility for preventing or managing economic crime, only slightly more than a quarter had given their boards any risk management training.
Companies tend to follow the old adage “burn me once shame on you, burn me twice shame on me.” Those that had suffered fraud took practical anti-fraud measures, from employee screening to awareness raising; those that had not, relied on passive measures such as a company code of ethics. Further, 76% of US respondents have some form of insurance but only 37% report recovering damages through insurance, and these recoveries are small.
Not Out Of Mind
However, companies are still worried about what is not being detected, particularly financial misrepresentation, which respondents believed to be prevalent in half of all companies. Further prevalent is asset misappropriation, at an incidence of 25% followed by cybercrime at an incidence of 8%.
Despite the heavy media coverage of such malfeasance though, the survey point out that the actual instances of financial misrepresentation was reported by only 2% of respondents, suggesting that the media attention surrounding some of the high-profile cases of financial misrepresentation in the US has exaggerated the perceptions of the instance of financial misrepresentation.
Larger companies apparently have more reasons to be concerned. Companies with more employees are more likely to have suffered from economic crime, with an average loss per company of $2.2 million.
Not surprisingly, the study found economic crime is consistently harmful to a company’s intangible assets. More than three-quarters of the incidences of economic crime had a negative impact on the company’s reputation and on staff morale and motivation, in addition to damaging business relationships.
Produced by the law firm of Wilmer, Cutler & Pickering, the survey is based on more than 90 interviews with chief executive officers, chief financial officers, and those responsible for detecting and preventing economic crime in the largest US companies. Copies of the US and Global Economic Crime Surveys are available at www.wilmer.com .
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