Global Survey Shows Business Fraud Up; Boards Have Increased Concern About Liability

NEW YORK, May 19 /PRNewswire/ -- 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%), the Middle East and Africa (87%), Central and Eastern Europe (84%) and Australia (81%) are particularly concerned about their personal liability for the companies' fraud, bribery or corruption. While 72% 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% of companies report experiencing an instance of fraud over the past two years.  In the U.S., however, only 9% of companies report experiencing an instance of fraud - a decline from 15% 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% from 10%.  This difference may be attributed to the fact that U.S. companies are more diligent about assessing risk than their global counterparts – 82% 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% of respondents globally say they rarely or never conduct such procedures. The figures for post-acquisition due diligence raise even greater concerns, with 42% 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% 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.

About the survey

Between November 2009 and February 2010, our researchers conducted a total of 1,409 interviews in the local language with senior decision-makers from large enterprises in 36 countries.

The sample was structured to hear from those who bear the responsibility for tackling fraud, and more than 85% our respondents were either CFOs or head their company's internal audit, legal or compliance groups.

About Ernst & Young's Fraud Investigation & Dispute Services

Dealing with complex issues of fraud, regulatory compliance and business disputes can detract from efforts to achieve your company's potential. Better management of fraud risk and compliance exposure is a critical business priority – no matter the industry sector. With our more than 1,000 fraud investigation and dispute professional around the world, we assemble the right multidisciplinary and culturally aligned team to work with you and your legal advisors. And we work to give you the benefit of our broad sector experience, our deep subject matter knowledge and the latest insights from our work worldwide. Its how Ernst & Young makes a difference.  

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

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This news release has been issued by Ernst & Young LLP, a US client-serving member firm of Ernst & Young Global Limited.

SOURCE Ernst & Young