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Fraud and corruption risks impact corporate international expansion

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  • 61% of respondents in key rapid-growth markets say corruption is widespread
  • 20% of businesses believe that their anti-bribery/anti-corruption policies make them less competitive
  • 37% of respondents agree that companies often overstate their financial performance

EY’s Europe, Middle East, India and Africa (EMEIA) Fraud Survey, Fraud and corruption – the easy option for growth?, has found that greater pressure on businesses to grow revenues together with market volatility is creating increased risk in expansion opportunities. Challenges, including geopolitical instability, commodity and currency price volatility, as well as economic sanctions, are pushing companies and their executives toward high-risk behavior.

The survey, which polled 3,800 employees of large businesses in 38 countries, including Romania, found that nearly 33% of survey respondents report that management is under increased pressure to expand into higher risk markets. In these markets, 61% of respondents see corruption in companies as widespread, and 37% of respondents report that companies often overstate their financial performance.

The risk of fraud, however, is not limited to rapid-growth markets. 26% of senior management respondents said they have heard of early recognition of revenue occurring in their organization in the past year – the type of behavior that has been at the center of numerous high-profile frauds. In addition, 21% of respondents report that bad news about financial performance is not being shared openly.

David Stulb, Global Leader of EY’s Fraud Investigation & Dispute Services (FIDS) practice, says: “The risks of fraud, bribery and corruption are real. Businesses are facing complex restrictions in the way they conduct business with evolving sanctions regimes and new risks, such as cybercrime, having the potential to significantly disrupt operations. Businesses need to have their eyes wide open in their pursuit of high-risk growth strategies.”

The EY Romania - FIDS leader, Burcin Atakan, Executive Director, states that “the results obtained through the EMEIA Fraud Survey 2015 from the Romanian side brought a new picture into the perspective. The proactive regulatory actions taken by the state in the last two years have been appreciated by the market players, which suggest that Romania is now energizing to join the league of highly regulated countries with its own structural advantages.”

In addition to this, Laura Lica-Banu, Senior Manager, EY Romania, underlined that “39% of the Romanian respondents believe that bribery and corrupt practices happen widely in the local business environment. While this fact is concerning, when we have deeper look into the matter, we can see that in the Eastern Europe, the general perception is higher (63%), and in the rapid-growth countries it reaches 61%. Also, the participants of the survey are more optimistic about the anti-corruption measures in comparison with two years ago.”

Are fraud and corruption the easy options for growth?

While senior management may be tempted to take risks to accelerate short-term growth, the survey shows a clear correlation in companies that are growing and are taking compliance seriously. Respondents whose business has experienced revenue growth in the last two years are:

  • More likely to rate their company’s ethical standards as “very good”
  • More likely to have or know about their company’s anti-bribery/anti-corruption policy
  • More likely to see operations across markets meeting the same ethical standards

Mrs. Lica-Banu stated that “the Romanian business sector moved in a good direction. There is a stronger commitment of the senior management in communicating the anti-corruption policies and granting a special attention to the reputational risk that could affect the business. The responses show an increased awareness on the need to adopt anti-bribery compliance programmes and to monitor the conflicts of interest. We have to continue building blocks on this matter.”

Businesses have to protect themselves enough

The numbers shows that the Romanian businesses started to work on enacting an effective compliance:

  • 58% of respondents say that their company have an anti-bribery/anti-corruption policy, or are aware of them;
  • 50% of respondents have participated to useful anti-bribery/anti-corruption training;
  • 52% say that a report of their companies’ whistleblowing hotline would be followed up on by senior management

The global results confirm that financial services organizations have responded to the intense pressure that they have been under from regulators, customers and others. Compared with other sectors, they are doing more to focus on compliance and the behaviors of their staff. But there are still gaps: there are respondents in the financial services sector who report that their business does not have an anti-bribery/anti-corruption policy or a whistleblowing hotline. Also, there are senior managers who are perceived as showing little attention to anti-money laundering rules, unauthorized trading or misselling issues.

Leadership’s commitment is critical

Although the survey shows that globally not all senior management is communicating its commitment to high ethical standards, the Romanian market players are more confident in their management decisions.  51% of respondents indicated that their senior management display high ethical standards In the way they conduct the business.

Mr. Burcin Atakan concludes that “There is still an intense pressure for the companies to develop their business. The survey clearly shows the confidence that an effective compliance and an appropriate management to the risks of fraud and corruption will assure the sustainability of the business.

View the report online at: www.ey.com/FIDS

 Notes to Editors

About EY’s Europe, Middle East, India and Africa Fraud Survey 2015, Fraud and Corruption – the easy option for growth?

Between December 2014 and January 2015, our researcher — the global market research agency Ipsos —conducted 3,800 interviews with employees of large companies in 38 countries online or in person. Interviews were conducted on an anonymous basis using local language in all countries.

Press release in Romanian (pdf, 46.1kb), in English (pdf, 74.6kb)