Your odds of falling victim to financial crime? Try 1 in 2

Most fraud is detected by “chance”, according to survey

SOURCE: OffshoreAlert

MIAMI, FL: March 21, 2007

Do you think that financial crime is unlikely to happen to your firm and, therefore, why should you spend money on preventing and detecting it? If you do, think again.

When accounting firm PricewaterhouseCoopers surveyed 3,634 companies worldwide for its 2005 Global Economic Crime Survey, it found that 45% of them had been victims of financial crime in the previous two years. That represented an 8% increase compared with a similar PwC study in 2003.

“No industry is safe – whether regulated or unregulated,” commented PwC in its 2005 Executive Summary. “From 38% to 60% of the companies in each of the sectors we surveyed reported significant frauds.”

There was an across-the-board increase in every economic crime category in 2005, compared with 2003. “In particular, there has been a 71% increase in the number reporting corruption and bribery, a 133% increase in the number reporting money laundering, and a 140% increase in the number reporting financial misrepresentation,” commented PwC.

The average financial damage to companies from tangible frauds, i.e. asset misappropriation, false pretences, and counterfeiting, was US$1.7 million and that did not take into account “collateral damage”, such as loss of reputation, noted the accounting firm.

According to PwC, “47% of the companies that suffered fraud managed to recover at least some of their assets. In the case of companies that had taken out insurance, the rate of recovery increased to 59%.”

Who is causing this financial carnage? “In most cases, perpetrators of fraud were male, between the ages of 31 and 40, and educated to degree level or higher,” stated PwC. “Half of the perpetrators were employed by the defrauded company, almost one quarter of them in senior management positions.”

According to PwC, companies “typically dismiss” perpetrators, although this occurs less often if the perpetrator is a senior manager. “While the decision not to dismiss a fraudster can be helpful in limiting unwanted media and regulatory attention, our experience indicates that this approach has little or no long-term value, since it does not act as a deterrent to other potential fraudsters within the business.”

Despite “growing confidence” of corporations in their risk management systems, most fraud is detected by chance, rather than by design, stated PwC. However, “Companies that employ a range of fraud detection measures uncover significantly more incidents than those who rely on internal controls and audit processes alone to detect fraud. They are also more capable of recovering losses.”

The prevention and detection of economic crime, together with the recovery of misappropriated funds, is the focus of the 5th OffshoreAlert Financial Due Diligence Conference, which will be held at the Hotel InterContinental, in downtown Miami, Florida, on April 24-25, 2007.

Full details can be obtained from www.OffshoreAlertConference.com.