Pervasive global corruption leaves boards struggling to cope

New York, 11 June 2014

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EY's 13th Global Fraud Survey, Overcoming compliance fatigue: reinforcing the commitment to ethical growth, has found concerning levels of perceived fraud, bribery and corruption across the world. And, regarding emerging threats, despite the apparent global consensus on the significant scale of the threat of cybercrime, almost half of the respondents (48%) considered it to represent a very or fairly low risk to their business.

These survey findings suggest that executives may not have a proper appreciation of cybercrime risks. Respondents see hackers as the biggest concern (48%) and are underestimating the risk from organized crime syndicates as well as foreign states.

The survey included in-depth interviews with more than 2,700 executives across 59 countries, including chief financial officers, chief compliance officers, general counsel and heads of internal audit. Nearly 40% of all respondents believe that bribery and corruption are widespread in their country. (See Appendix 1 to this release for a list of country results.) With respondents portraying a business environment of pervasive corruption in many countries, it would appear that management and boards are struggling to respond to long-standing threats, let alone addressing emerging risks such as cybercrime.

Brian Loughman, EY Americas Leader of Fraud Investigation & Dispute Services (FIDS), notes, "US respondents reported that the fraud incidence rate doubled to 16% from 8% over the last two years. This significant increase, coupled with the regular appearance of fraud and cybercrime in the headlines, makes it imperative for management to have a robust incident response strategy in place. Cybercrime and other emerging threats are becoming more prevalent, and with the US Securities and Exchange Commission increasingly focusing on cyber risks as they relate to the integrity of financial statements, boards and audit committees need to be vigilant in monitoring these risks."

Is the C-suite making the right risk management choices?

The C-suite's difficulties can only be heightened by insufficient awareness of the risks they face. Our survey found that they are less likely than their teams to attend anti-bribery/anti-corruption (ABAC) training (38%) or participate in an ABAC risk assessment (30%).

This is alarming given that these executives are apparently exposed to circumstances which threaten their integrity on a regular basis. Twenty-one percent of CEOs said that they had been approached to pay a bribe in the past, compared with 10% of all C-suite interviewees.

Worryingly, given their role in setting an ethical tone from the top, a significant minority (11%) of CEOs considered misstating financial performance to be justifiable in order to help a business survive an economic downturn, compared with 6% of all respondents.

David Stulb, Global Leader of EY's Fraud Investigation & Dispute Services (FIDS) practice says, "Given the risk of management overriding financial controls, the implications for boards from these findings about C-suite integrity are serious. Enhancing board connectivity with business and finance leaders in the company – but below the C-suite – would be useful to confirm that the board is getting the full and accurate picture. With regulators committing additional resources to prosecuting financial statement fraud, and cooperating frequently with prosecutors from other jurisdictions, the stakes have never been higher."

David Remnitz, the EY Global FIDS Forensic Technology Leader, adds: "Regulators are investing heavily to bolster their ability to mine big data from corporations for potential irregularities. The latest data visualization tools can help to identify revenue recognition or procurement-related red flags earlier and more efficiently. Boards should be asking how management is leveraging forensic data analytics to get the most from their big data in order to improve compliance and investigative outcomes."

The need to reinvigorate compliance

The survey also found that compliance fatigue within businesses appears to have set in at a time when they can least afford it. In a regulatory environment in which international cooperation is becoming more frequent, our respondents described a largely static internal compliance environment:

  • One in five businesses still do not have an ABAC policy
  • 45% of organizations have not introduced a whistleblowing hotline
  • Less than 50% of respondents have attended ABAC training
  • Less than a third of businesses are conducting anti-corruption due diligence as part of their mergers and acquisitions process

"Enforcement of anti-bribery/anti-corruption laws has become more intensive, with significantly strengthened cross-border cooperation among regulators," explains Stulb. "With new, tougher laws in numerous jurisdictions, and enhanced prosecutorial powers and bigger budgets for law enforcement in certain key geographies, this trend is not just a US phenomenon. Despite numerous recent high-profile prosecutions of major multinationals and their executives, many companies continue to miss opportunities to implement robust ABAC policies and risk assessments. Too few are regularly conducting anti-corruption due diligence. CEOs can do more to lead from the front on these matters, and boards and other stakeholders should intensify their efforts to challenge management to reinforce their commitment to ethical growth."

1. Appendix

Results relating to perceptions of bribery and corrupt practices by country

Survey question: "Can you tell me whether you think the following statement applies, or does not apply, to your country, or whether you don't know? Bribery/corrupt practices happen widely in business in this country."

Market

% Applies

% Does not apply

Nigeria

88

12

Kenya

87

10

South Africa

78

20

Greece

72

24

Namibia

72

22

Colombia

71

25

Brazil

70

30

Czech Republic

69

16

Italy

69

20

India

67

27

Slovenia

66

16

Argentina

64

32

Mexico

64

36

Croatia

64

18

Hungary

62

13

Serbia

60

28

Ukraine

60

12

Indonesia

56

30

Slovakia

56

10

Philippines

54

30

Middle East

52

44

Russia

48

26

Malaysia

46

40

Romania

46

32

Turkey

42

44

Total Average

38

51

Chile

37

57

Baltic States

34

47

Vietnam

32

60

Portugal

32

44

Spain

28

56

Saudi Arabia

26

16

China

24

64

US

22

68

Canada

20

78

Singapore

20

80

UK

18

70

Hong Kong SAR

16

78

Ireland

16

76

Norway

14

82

Poland

14

56

France

12

82

Luxembourg

8

76

Australia

8

80

Japan

6

88

Germany

6

92

Netherlands

6

86

Sweden

6

92

Belgium

6

84

South Korea

6

86

Switzerland

4

94

Austria

2

94

Finland

2

96

Denmark

2

96

Base: All respondents (2,658) - excludes Egypt, New Zealand and Israel as response numbers not sufficient

Note: Given that approximately 50 executives were interviewed in each country, these results are indicative and reflect the perceptions of those that were interviewed and do not necessarily reflect the views of EY. For more comprehensive analysis of the perceived levels of corruption in particular countries, see Transparency International's corruption measurement tools, including the Corruption Perceptions Index, the Bribe Payers Index and the Global Corruption Barometer.

2. Notes to editors

About the survey

Between November 2013 and February 2014, our researchers – the global market research agency Ipsos – conducted 2,719 interviews in the local language with senior decision-makers in a sample of the largest companies in 59 countries.

About EY's Fraud Investigation & Dispute Services (FIDS) practice

Dealing with complex issues of fraud, regulatory compliance and business disputes can detract from efforts to succeed. Better management of fraud risk and compliance exposure is a critical business priority — no matter the industry sector. With our more than 2,600 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.

About EY

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This news release has been issued by Ernst & Young LLP, a member firm of EY serving clients in the US.

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