Economic crimes rose during downturn

By Jackson Okoth

Bribery and corruption, accounting fraud and asset misappropriation are the three most common economic crimes reported in many organisations, a global survey shows. This report ranks asset misappropriation at the top of the list in frauds that involve theft or misuse of a company’s assets.

The fifth edition of the 2009 Global Economic Crime Survey, undertaken by PriceWaterhouseCoopers (PWC) is titled Economic Crime in a Downturn. It is based on more than 3,000 companies in 54 countries, considered the largest and most comprehensive international survey of economic crime worldwide.

Of the 3,037 respondents, 30 per cent reported having experienced at least one incident of fraud in the last 12 months. Data from this survey also indicate that incidence of economic crimes were higher in emerging markets than in other developed countries.

Sectors that reported most economic crimes are communications, insurance, financial services and hospitality and leisure.

The 2009 survey shows high levels of bribery and corruption in engineering and construction industry (47 per cent), and energy and mining industry (43 per cent).

The industries are renowned for their exposure to ‘kickbacks’ and rigging.

Fraud practitioners point out to incentive, opportunity and attitude as the three main reasons an individual decides to commit fraud.

PWC mentions that during the global economic downturn, the financial performance of many organisations worldwide was affected.

But while recession increased incidences of fraud in some organisations, even those with stable financial performance were equally affected.

But it is accounting fraud that was more prevalent in firms worst hit by the economic downturn last year.

Revenue inflation

In a downturn, competition becomes severe and cut-throat. In such a situation, pressure to achieve targets is high and so is the temptation to inflate revenues and or omit expenses.

Bribery and corruption is most prevalent in emerging markets, especially in organisations dealings with government officials.

The survey mentions increased regulation in most parts of the world, change of attitude towards bribery and corruption globally.

For instance, regulators are taking an increasingly dim view of organisations and individuals that have paid or received bribes in order to secure contracts and business.

Globally, 17 per cent of frauds reported in 2009 were detected by internal audit, and seven per cent through whistle-blowing procedures.

The survey also found that the profile of the internal fraudster is changing rapidly, with economic crimes committed by middle-level managers accounting for 42 per cent of all frauds, up from 26 per cent in 2007.