OREANDA-NEWS. November 24, 2009. Already beset by the global recession, nearly one in three organisations around the world reported they were the victims of economic crime during the past 12 months. Of those, 43% said that the incidences of fraud in their organisations had increased during the period, according to the latest PricewaterhouseCoopers' Global Economic Crime Survey, reported the press-centre of PwC.

The survey of more than 3,000 respondents in 54 countries, including 86 respondents from Russia, is the most comprehensive study of its kind, and was conducted in conjunction with the INSEAD business school.

In Russia 71% of respondents had experienced some form of economic crime during the past year. This is a 12 percentage point increase compared to our last Economic Crime Survey in 2007 (59%). For 47% of companies, the losses topped USD 1 million.

Asset misappropriation, cited by 64% of those who reported economic crime, was the most pervasive, followed by bribery and corruption (48%) and financial statement fraud (28%). Other reported crimes included intellectual property infringement and market fraud involving cartels colluding to fix prices.

The global economic downturn has significantly affected most organisations, with 66% of Russian respondents reporting a decline in financial performance during the last 12 months. Furthermore, the current economic climate has affected individuals’ view on fraud risks, with 51% of respondents reporting that they believe their organisation currently faces a greater risk of economic crime. 86% cited heightened incentive or pressure to commit fraud.

While the direct costs of economic crime may seem alarming enough on their own, one should not ignore the collateral damage from fraud, i.e., damage to a company’s brand and customer trust; to the market and shareholder trust; to the company’s business relations and relations with regulators; and to staff morale, which can result in high staff turnover and loss of productivity. Some 44% of Russian companies highlighted employee morale as the most significant factor affected by economic crime.

Of the companies who were victims of economic crimes in the last 12 months, 42% conducted fraud risk assessments on a regular basis. In the last 12 months most Russian companies implemented additional procedures to check the identity of customers and suppliers (63%), 52% increased the focus of internal audit, 49% improved tone at the top to reinforce ethical behaviour, 47% implemented additional recruitment and exit procedures, and 38% reviewed anti fraud policies. Nearly half of respondents (49%) noted that their management sets an example by adhering to ethical business principles and promoting ethical behaviour throughout the company.
Compared to other territories, external parties appear to play a more significant role in Russia in colluding to carry out economic crimes. 62% of Russian companies believe that a party external to the company played a collusive role in the fraud.

Although there has been an increase in the perception levels, the results show a significant gap between the perception of the likelihood that fraud will occur in future compared with the reality of incidence of fraud historically reported.

John Wilkinson, Partner, PricewaterhouseCoopers Russia, and Forensic Services leader for CEE, Russia and the CIS, comments:

“We are seeing a continuation if the trend that we noted in the 2007 Global Economic Crime Survey: Russian companies are stepping up their risk management systems, in particular, in consideration for the growing risk of fraud.

This is timely as in an economic downturn more people feel real pressure to “cross the line” or to look the other way while the others do so.”