Drive for revenue growth ignores risk of prosecution for senior executives
A concerning escalation in the number of executives willing to make cash payments to win business
Mumbai, 23 May 2012 – Ernst & Young’s 2012 Global Fraud Survey, Growing Beyond: a place for integrity, shows that an alarming 28% (global 15%, up from 9% in 2010) of senior executives polled at leading companies around the world including India are willing to make cash payments to win or retain business and 16% of India respondents (global 5%) feel that it is justified to misstate financial performance in order to help their business survive
Given the extensive media coverage, it is not surprising that fraud, bribery and corruption are seen as significant risks in India with 70% of respondents (global 39%) opining that bribery and corruption are widespread in the country.
Arpinder Singh, Partner & National Director – Fraud Investigation & Dispute Services, Ernst & Young Private Limited says, “Although India still remains a favored investment destination, the survey revealed that the market still faces the challenge of compromised ethical behavior justified by the offenders as survival in a highly competitive and fast growing market. As domestic enforcement activity is building strength, increased focus on mitigating fraud, bribery and corruption risk has been matched by growing regulatory activity, enhanced media activism and more severe penalties.”
“As the market continues the extensive use of cash to make payments, organizations must ensure that governance processes are embedded at the local level. With fraud, bribery and corruption risk so high on the domestic and international agenda, it is essential that companies with a presence in India actively address these risks”, adds Arpinder Singh.
For a growing number of executives, the pressure to meet revenue growth targets is undermining their commitment to compliance with policies and the law. The competitive landscape continues to be distorted by unethical conduct. Over a third of the respondents believe corruption is widespread in their country and this is perceived to be significantly higher in rapid-growth markets (e.g., Brazil - 84%, India – 70%, Indonesia - 72%). Financial statement fraud remains an important risk across many jurisdictions. Indeed, fifteen percent of respondents in Far East Asia think that financial performance misstatement can be justified.
Boards under pressure
Over 70% of the Indian respondents think that the Board needs a more detailed understanding of the business to function as an effective safeguard against fraud, bribery and corruption risks, compared to 51% of all respondents globally. Mixed messages are being given by management – with the ‘tone at the top’ diluted by the failure to penalize misconduct. Globally, boards are held responsible by regulators and shareholders for addressing these challenges and are under intense pressure.
David Stulb, Global Leader of Ernst & Young’s Fraud Investigation & Disputes Services practice says, “Growth and ethical business conduct in today’s markets can appear to be competing priorities. Our findings show that, as businesses continue to pursue opportunities in new markets, many executives are underestimating the risks. Boards need to put pressure on management to conduct more frequent and more robust anti-bribery/anti-corruption risk assessments and they need more tailored reporting to drive improved compliance.”
Preparing for new challenges: managing third parties and risk from acquisitions
Companies pursuing opportunities in rapid-growth markets face specific risks that are not always being managed effectively, according to the survey. Indian companies have limited awareness about the possible liability for the actions of their 3rd party agents as 24% respondents said that 3rd party alone is liable for its own action (global 14%). However, in comparison to global average more Indian companies have adopted systems or processes to manage and monitor third party relationships. Globally only 22% respondents are in favor of whistleblower bounty schemes. Surprisingly, 44% India respondents are in support of such schemes.
Arpinder Singh concludes “Growth and ethical business conduct need to come hand in hand. Setting the expectation of conduct to be exhibited by employees and third parties helps in deterring the unethical behavior, but it’s essential to communicate this expectation clearly and repeatedly to bring about any positive change. The tone at the top is important, but it’s critical to follow intent with honest action.”
Notes to editors
About the survey
The survey is the largest one Ernst & Young have produced in this series. Between November 2011 and February 2012, more than 1,700 interviews were conducted in 43 countries with individuals from a sample of the largest companies by turnover in each country. Face-to-face interviews were subsequently held with senior executives of blue chip companies about the survey findings. A copy of the survey is available at: www.ey.com/globalfraudsurvey2012
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 more than 1,600 fraud investigation and dispute professionals 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. It’s how Ernst & Young makes a difference.
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