U.S. companies exposed to heightened risk of fraud and financial manipulation in their EMEIA operations
New York, 7 May 2013
- EY's survey of more than 3,000 employees in 36 countries across EMEIA highlights that one in five respondents are aware of financial manipulation in their own company in the last 12 months
- 42% of board directors and senior managers are aware of irregular financial reporting in their company
- 57% believe bribery and corruption are widespread in their country
Findings from EY's 2013 Europe, Middle East, India and Africa (EMEIA) Fraud Survey, Navigating today's complex business risks, show that one in five employees surveyed are aware of financial manipulation in their own company in the last 12 months. This awareness increases to more than a quarter of respondents in rapid-growth markets. At board and senior manager level the proportion is higher still; more than 40% of those asked said that sales or costs had been manipulated at their company.
The survey also found that 38% of all respondents believe companies within their jurisdiction overstate their financial performance. Almost half the respondents in rapid-growth markets agree that companies in their countries often misrepresent financial performance, compared with 29% of those with headquarters in Western Europe.
Brian Loughman, Americas Leader of Fraud Investigation & Dispute Services for the global EY organization says, "For U.S.-based executives responsible for businesses in these regions, such findings should be cause for concern. The possibility of inaccurate financial reporting to headquarters, or corrupt payments being made to secure sales, undermines the parent company and could expose it to enforcement action by regulators."
Bribery and corruption prevalent across business sectors
The survey shows the risks of misreporting are compounded by an unethical business environment. Fifty-seven percent of all respondents believe bribery and corruption are widespread in their country, which rises to 67% in rapid-growth markets. The proportion dropped however, to 26% who feel it is common to use bribery to win contracts in their own sector.
Loughman says, "Given the economic volatility and financial stresses being felt in many of these markets, revisiting existing risk assessments is a prudent measure. Today's survey findings regarding conduct in some of the most important overseas markets for U.S. business should provide a fresh and urgent impetus to these fraud and bribery risk mitigation efforts."
Compliance perception gap between management and employees
While the majority of respondents are aware that their company has an anti-bribery/anti-corruption (ABAC) policy, the survey shows many organizations have a significant perception gap between senior management and employees when it comes to the relevance and effectiveness of this policy. Sixty percent of directors and senior managers believe that their company would support people who reported cases of suspected fraud, bribery or corruption, whereas only 34% of other employees agree.
Critical business functions continue to question the importance of such programs. For example, just under half of respondents in the sales function either do not consider their organization's ABAC program relevant to their role, or are not even aware of its existence.
Loughman concludes, "Instilling a commitment to ethical conduct across a global organization is a daunting task. Establishing a rigorous compliance program, appropriately tailored to the industry sector and operating geographies, is a start. But companies need to continually challenge themselves on the practical aspects of their compliance programs if they are to effectively manage the risk of fraud, bribery and corruption. The efficacy of existing training programs should be reviewed, and the internal audit function challenged on whether forensic data analytics are being adequately employed to mitigate these complex risks."
About the survey
Between November and December 2012, researchers engaged by EY – the global market research agency Ipsos – conducted 3,459 interviews by telephone, online or in person with employees of large companies across 36 countries in Europe, the Middle East, India and Africa to gauge their views on fraud, bribery and corruption.
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This news release has been issued by Ernst & Young LLP, a client-serving member firm of Ernst Young Global Limited operating in the US.