«Ernst & Young European Fraud Survey»: Fraud risk on the increase across Switzerland as recession bites
«Ernst & Young Fraud survey» reveals alarmingly high tolerance of unethical business behavior in Switzerland.
ZURICH, 19 MAI 2009 - The «Ernst & Young European Fraud Survey» released today reveals that as the recession in Europe deepens there are worrying trends in what company employees believe is acceptable business behavior.
The responses of over 2,200 individuals in major companies in 22 countries across Europe vary by jurisdiction but there are some consistent themes. An alarming half of the surveyed European respondents, and 40% of the Swiss respondents thought that one or more types of unethical business behavior was acceptable. For example, 25% of the European and 20% of the Swiss respondents thought it fine to give a cash bribe to win work.
There was even a significant minority of 8% of the European interviewees who felt that distorting their company’s financial performance was justifiable to survive today’s turbulent economic climate. While only 2% of all Swiss respondents shared the same feeling as their European counterparts.
Dr. Michael Faske, Ernst & Young’s Fraud Investigation & Dispute Services Leader in Switzerland says: «Even though the Swiss differ somewhat in their views regarding fraud, the findings of this survey show there is a disappointing and frightening tolerance of unethical behaviour amongst employees in companies across Europe.
Making cash payments to win business, and even deliberately misstating financial performance to mask disappointing results were supported by alarmingly large numbers of respondents. »
A bad problem that is getting worse
Not only does a downturn expose more fraud as the masking effect of economic growth is withdrawn, but as the pressure intensifies on management to maintain income and earnings, the incentive to commit fraud increases.
Dr. Michael Faske comments: «In the current climate, management is under incredible pressure to stabilise their businesses and meet financial targets - both at a personal and organizational level.”
A frequently shifting organizational structure and blurred reporting responsibilities provide opportunities for fraudulent behavior in good economic times. This is of course intensified in a recessionary environment where such issues become more widespread.
As Dr. Michael Faske explains: “When Swiss companies are making redundancies or they are undergoing changes in ownership, gaps can appear in financial controls.” In Switzerland, 30% of the respondents think fraud rises during mergers or takeovers (compared to 45% across Europe). According to a high 88% of the Swiss respondents, redundancies are a main reason for increased fraud risks resulting from a merger. 37% of the Swiss respondents to the survey believe that normal policies and procedures are likely to be overlooked as staff redundancies are made and 60%, more than the European average, believe that the differing standards of behaviour that are typically held by two merging companies poses a major challenge to anti-fraud efforts.
Consistent pessimism across Europe
Over half of those individuals surveyed (53% of the Swiss respondents and 55% of the European respondents) expected corporate fraud to increase over the next few years. The increase of corporate fraud is expected because of changes that will be made to businesses in response to the economic downturn, reduced focus on anti-fraud, pressures to protect the future of the company and the pressure to keep bonuses and compensation greater. In Switzerland, only 5% of respondents thought that corporate fraud would decline. Dr. Michael Faske comments: «Geographic location or relative economic wealth makes little difference to expectations of increased fraud across Europe. This is a global recession and fraud is a global problem».
Management is seen as part of the problem
The Swiss respondents to the survey do not differ much from their European counterparts in their belief that far from setting a leading example, all levels of management of companies are in fact part of the problem, if not the biggest risk of fraud, with 38% citing senior management and 36% middle management as being the levels in an organization where there is the biggest risk of fraud being committed. Some 71% of respondents had cause to doubt the integrity of their company’s management, which is almost equal to the 69% European average. Furthermore, 88% think management is likely to cut corners to meet targets when economic times are tough. Only 22% of the Swiss respondents (and 24% of the European respondents) believed that their company’s management operates with a high level of personal integrity.
As a result of this mistrust of management, the research suggests that employees expect regulators and other authorities to do more to protect them and to ensure their bosses are compelled to intensify their efforts to defend companies from fraud. The survey highlighted the fact that the Swiss believe much more strongly than the average European in the need for more governmental and regulator presence and supervision to actively combat and reduce the risk of fraud.
As Dr. Michael Faske explains they were right to be concerned as, «worryingly, the senior management of the population that we surveyed are more likely to condone bribery and financial statement fraud than those of junior rank. Indeed our interaction with regulators suggests that they are very conscious of the shortcomings in corporate governance and are positioning themselves for much more aggressive enforcement action». Furthermore, 66% of the Swiss respondents agreed that directors should be held personally liable for lapses through fraud occurring under their watch.
A wake up call?
As Dr. Michael Faske concludes, there is a silver lining with fraud now so high on the corporate agenda. «The good news is that the current period of adversity can present opportunities to drive change more rapidly and effectively than in more prosperous times. Now is the moment for management to act urgently and emphatically to reinforce the importance of ethical business conduct».
About the survey
In February 2009 a total of 2,246 interviews with employees in 22 European countries were conducted either by telephone or online. Participants were employed by listed and/or multinational companies with over 1,000 employees. 48% worked for companies with over 5,000 employees, 92% over 500 employees.
Download European Fraud Survey 2009 (PDF, 1.04 MB)
Download News Release "«Ernst & Young European Fraud Survey»: Fraud risk on the increase across Switzerland as recession bites" (PDF 47,4 kB)
Brief portrait of Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 135'000 people are united by our shared values and an unwavering commitment to quality. In Switzerland, Ernst & Young is a leading auditing and advisory services firm and provider of tax and legal as well as transaction and accounting services. Our 1'900 people generated revenues of CHF 563 million in the financial year 2007/08. We make a difference by helping our people, our clients and our wider communities achieve potential. For more information, please visit www.ey.com/ch.
Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, UK, does not provide services to clients.
/$FILE/12L00039.jpg)