Financial Malfeasance Widely Known at Companies

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One out of five employees is aware of financial manipulation in their company abroad, according to a new survey by Ernst & Young, and 42 percent of board directors and senior managers are aware of irregular financial reporting in their company.

The firm’s 2013 Europe, Middle East, India and Africa Fraud Survey polled more than 3,000 employees in 36 countries across EMEIA and found that that one in five employees surveyed said are aware of financial manipulation in their own company in the last 12 months. The survey was conducted by the market research firm Ipsos in November and December 2012. This awareness increased to over a quarter of respondents in rapidly growing markets. At board and senior manager level the proportion is higher still; more than 40 percent of those asked said that sales or costs had been manipulated at their company.

In addition, 57 percent said they believe bribery and corruption are widespread in their country. The survey also found that 38 percent of all respondents believe companies within their jurisdiction overstate their financial performance. Nearly half the respondents in rapidly growing markets agreed that companies in their countries often misrepresent financial performance, compared with 29 percent of those with headquarters in Western Europe.

“Given the current challenging market conditions, companies face sustained pressure to meet growth and profit expectations,” said David Stulb, global leader of Ernst & Young’s Fraud Investigation & Dispute Services practice, in a statement. “In this environment, some inevitably succumb to unethical behavior. Shareholders expect management to take responsibility for protecting the business by implementing anti-bribery and anti-fraud programs at all levels of their organization. Boards must challenge management to ensure they are focused on high-risk areas.”

The survey indicated that the risks of misreporting are compounded by an unethical business environment. Fifty-seven percent of the respondents said they believe bribery and corruption are widespread in their country, which rises to 67 percent in rapid-growth markets. The proportion dropped, however, to 26 percent who feel it is common to use bribery to win contracts in their own sector.

While the majority of respondents are aware that their company has an anti-bribery and anti-corruption policy, the survey shows that 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 percent 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 anti-bribery and anti-corruption program relevant to their role, or are not even aware of its existence.

“While companies are focused on cost, compliance can be an afterthought for some organizations,” said Stulb. “Many incorrectly assume that the mere existence of an anti-bribery program is sufficient to mitigate their risk. Companies must ensure the program is communicated effectively, employees are trained adequately and it is continuously monitored and updated. Our experience also shows that leaders of organizations that successfully manage the risk of fraud, bribery and corruption ask the difficult questions and demand answers, particularly about the financial reports they receive.

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