New York, NY, November 30, 2005—According to a study from auditing firm PriceWaterhouseCoopers (PWC), despite tough regulations aimed at improving corporate governance, financial fraud is still on the rise around the world, and most is still detected by chance,
Globally, the number of companies that reported financial fraud increased 22 percent in the last two years, according to the PWC study, which conducted 3,634 interviews with corporate officers in 34 countries.
Of companies polled, 45 percent reported that they detected incidents of fraud, up from 37 percent who reported incidents in 2003. For the roughly one-third which said they could quantify the cost of the fraud, the total losses exceeded $2 billion, or an average of $1.7 million per company.
"Economic crime remains difficult to detect, despite everybody's best efforts to invest in internal controls," said Steven Skalak, Global Investigations Leader at PWC.
The survey showed that the most common methods of finding out about financial fraud were still accidental, like calls to hotlines or tips from whistle-blower employees.
The study, conducted in conjunction with Martin-Luther University in Germany, revealed that fraud was detected by chance in more than a third of the cases, while internal audit detected the fraud 26 percent of the time.
Larger companies were more likely to experience and detect fraud, but no company or industry, in regulated or unregulated sectors, was immune to financial fraud, the survey showed.
"A combination of things creates the environment where there's opportunity, there's incentive and there's rationalization to commit economic crimes," Skalak said.
Of those who committed the fraud in North America, 60 percent were employees of the defrauded company. Almost one-quarter of the perpetrators were senior managers--the very people required to sign off on financial statements.
Recent tough economic conditions may have increased pressure on some to commit financial crimes, but thinly-stretched corporate resources, or a desire to compete in unfamiliar and foreign markets could also be the culprit, Skalak said.
A simple reason for the increase, could be that management, regulators, law enforcement officers, boards of directors and auditors have actually gotten better at detecting the fraud.
"I think the investment in control systems is paying off and detecting more crime, and I think it remains to be seen whether that pays off in the future," Skalak said.
Nearly 80 percent of companies polled, said they did not consider it likely that they would suffer from financial fraud over the next five years.
