More than a third (37 percent) of chemical companies have suffered from economic crime, to the tune of nearly $600,000 per company, according to the latest PricewaterhouseCoopers Global Economic Crime Survey of the chemicals industry.
The chemicals industry has experienced a slight reduction in economic crime since the last PwC survey two years ago, with the number of companies reporting such instances dropping three percent, from 40 percent to 37 percent. However, reports of corruption and bribery more than doubled to almost 30 percent.
The top five types of economic crimes committed against chemical companies in the past two years, by percentage of respondents reporting such types of incidents, are:
* Asset misappropriation (fraudulent disbursements, e.g., payments to ghost employees, fictitious vendors, over-billing schemes) - 60 percent
* False pretences (deceiving others in order to obtain financial gain) - 35%
* Corruption and bribery - 28%
* Counterfeiting - 24%
* Financial misrepresentation - 20%
"In the past, many chemicals industry executives were under the misconception that fraud 'can't happen here in my company'," said Saverio Fato, Global Chemicals leader for PricewaterhouseCoopers. "Recently, however, the chemicals industry has seen signs of a culture shift; understanding that fraud does indeed happen, and that its results have the potential to damage a company's financial well being, competitive advantage, employee morale and vendor/supplier relationships."
In many cases, the impact of fraud in the chemicals industry has broader consequences than just financial loss. For example, a company can be put at a significant disadvantage if competitors are able to replicate a patented process because sensitive data such as production methods or formulas are compromised.
Economic crime remains difficult to detect. Although most companies report a very high level of satisfaction with their various fraud detection measures, more than 43 percent of frauds in the chemicals industry are still detected by chance (e.g., through tip-offs or by accident). Internal auditors also uncovered a number of frauds (26 percent), indicating that companies should ensure that their internal audit departments have comprehensive fraud awareness training. A robust internal audit function may also serve as a deterrent to would-be offenders.
The survey findings were not all bad news, as they indicate chemical companies are starting to recognise the need to improve internal controls. Forty-five percent expressed a high level of willingness to improve these measures over the course of the next two years. The same percentage of respondents is also looking to beef up compliance programs - an encouraging sign that the industry is taking economic crime seriously.
"Fraud is being recognised and reported more and more often, but some chemical companies have a false sense of security when it comes to economic crime," concluded Claudia Nestler, partner and Global Economic Crime Survey leader for PricewaterhouseCoopers. "Only 17 percent of respondents feel their organization is likely or very likely to suffer from economic crime in the next five years. Progress to tighten internal controls and develop codes of conduct has been made but many chemical companies need to do more to implement concrete fraud prevention measures such as comprehensive fraud awareness training."
More than 160 chemical companies based in 30 countries participated in the survey as part of a wider cross-sector study, The PricewaterhouseCoopers Global Economic Crime Survey, for which more than 3,500 executives responsible for detecting economic fraud were interviewed. It was conducted on behalf of PricewaterhouseCoopers and leading criminological scholars at Martin-Luther, Halle-Wittenberg by TNS-Emnid in
A copy of the Global Economic Crime Survey of the chemicals industry is available at http://www.pwc.com/chemicals.
