Global poll shows business fraud up

The majority of executives believe their boards are not sufficiently prepared to deal with the new risks related to fraud and corruption as companies return to growth, reveals the Ernst & Young 11th Global Fraud Survey, Driving Ethical Growth – New Markets, New Challenges. In addition, more than three-quarters of executives believe their boards are increasingly concerned about their personal liability from fraud, bribery and corruption.

The biennial survey, which includes responses from more than 1,400 CFOs and heads of internal audit, legal and compliance in major corporations in 36 countries, shows that from a global perspective, corporate boards in Latin America (95 percent), the Middle East and Africa (87 percent), Central and Eastern Europe (84 percent) and Australia (81 percent) are particularly concerned about their personal liability for the companies' fraud, bribery or corruption. While 72 percent of directors in North America are concerned about these risks, the survey reveals that U.S. boards are asking more questions about bribery and fraud than their global counterparts.

"We found that U.S. companies are asking the CFO for reviews of anti-fraud, bribery and corruption at a much higher rate than in other regions," said Jeff Taylor, Americas leader of Ernst & Young's Fraud Investigation & Dispute Services. "At the same time, we also saw that, even as incidents of fraud have risen globally in the past year, they have dropped in the United States. These requests are being taken seriously, as personal liability, not just the potential financial impact to the company, has become a great concern among senior level executives when it comes to instances of fraud."

Globally, 16 percent of companies report experiencing an instance of fraud over the past two years. In the U.S., however, only 9 percent of companies report experiencing an instance of fraud – a decline from 15 percent in the U.S. two years ago. Western Europe is one region where a growing number of companies have experienced an instance of fraud- rising to 21 percent from 10 percent. This difference may be attributed to the fact that U.S. companies are more diligent about assessing risk than their global counterparts – 82 percent of U.S. corporations say they have carried out a fraud risk assessment in the last 12 months, compared to only two-thirds of companies globally.

Relying on due diligence activities to achieve market growth

As companies emerge from the downturn, many are looking for new ways to grow, focusing on emerging markets around the world. These efforts, however, can expose companies to numerous new risks, particularly corruption issues resulting from overseas acquisitions. To minimize such risks during expansion, businesses should conduct thorough, focused pre-acquisition due diligence activities. According to the survey, U.S. companies were among the most thorough, while 30 percent of respondents globally say they rarely or never conduct such procedures. The figures for post-acquisition due diligence raise even greater concerns, with 42 percent of respondents admitting that they rarely or never conducted such procedures.

"Our survey shows that U.S. companies are among the most rigorous when it comes to conducting due diligence, an essential step in reducing the risk of successor liability. This most likely stems from the strong enforcement activities and messages being delivered by U.S. regulators and enforcement agencies," adds Taylor. "However, as U.S. companies expand into new markets, to improve performance and remain strong in the new economy they must remain vigilant in their due diligence and reporting efforts during all merger, acquisition and expansion opportunities."

Looking forward, more than half of the North American compliance officers see data security as the most significant compliance concern in the next 18 months, followed by concerns over unethical business conduct and health and safety. In addition, nearly half of the legal departments in North America are concerned about the high price of e-mail review. In response, 61 percent have implemented a records management program or plans designed to reduce the cost of future e-mail reviews – almost twice that of any other region.