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Home / North West / Deals / Ernst & Young: Rise in fraud but prevention policies are still lacking

Ernst & Young: Rise in fraud but prevention policies are still lacking

Ernst & Young: Rise in fraud but prevention policies are still lacking
Deals |
June 14 2010
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Kevin Hills

Kevin Hills
Partner
Fraud Investigation and Dispute Services

EY2

Kevin Hills, fraud investigation & dispute services partner at Ernst & Young in Manchester, looks at how boards have dealt with the risks of fraud and corruption during the financial crisis.

Having managed through the financial crisis of the last two years, many companies are beginning to focus on growth. Executives believe that their boards are not sufficiently prepared to deal with the new risks from fraud and corruption, according to the Ernst & Young’s 11th Global Fraud Survey. Furthermore, it reveals that 76% of respondents, globally and in the UK, feel their boards are increasingly concerned about their personal liability from fraud, bribery and corruption.

The responses of over 1,400 CFOs and heads of legal, compliance and internal audit, in major companies in 36 countries across the world, also shows that fraud appears to be increasing significantly in some regions. For example, in Western Europe the number of companies that had experienced a significant instance of fraud in the past two years increased from 10% to 21%, while fraud levels also remain high in Latin America (21%), and the Middle East and Africa (18%).

The UK reported a marginal increase in fraud over the last two years (up from 13% to 14%). This is not inconsistent with what we are hearing from businesses based in North West. The increase is unsurprising given the difficult economic conditions we have been facing. There has been increased pressure to maintain financial results which has encouraged new frauds, whilst companies have been forced to take a closer inspection of costs, leading to the uncovering of pre-existing fraud schemes.

Encouragingly, UK results indicated higher levels of fraud response preparedness compared to Western Europe, with 78% of UK respondents reporting that they have a clear process for reporting incidents to the board and 74% stating that there were well-defined roles for the different stakeholders in investigations. However, it remains to be seen whether this will stand up to heightened regulatory scrutiny.

Fraud risk assessment not a priority

Alarmingly, 18% of UK companies have not performed a fraud risk assessment within the last 12 months, while nearly one in ten (8%) has never performed one. The frequency of fraud risk assessments being performed in the UK lags behind both Western Europe and the rest of the world.

Given the pressure on corporate resources, prioritising anti-fraud and anti-corruption efforts is essential. Regularly scheduled assessments of risks in particular businesses and markets are prudent and help those in risk management functions to tackle the most pressing situations.

In conclusion, increased enforcement against fraud, bribery and corruption is a priority in many major markets. Individual executives and directors will not be immune from prosecution. Indeed, the passage of the UK’s Bribery Act is the latest example of a more robust approach to punishing the unethical conduct of individuals and corporates, and one that may have extraterritorial application. In the coming months, if they have not done so already, companies will need to review or improve their procedures to achieve long term sustainable and ethical growth.

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