CPA Resources
CPA Resources

Study highlights persistent risk of fraud

NEW YORK CITY, May 22, 2008 – Illegal business practices, including bribery, are still used by many organizations to secure or retain business, despite the rise in international anti-corruption legislation and law enforcement, according to the findings of Ernst & Young’s 10th global fraud survey, "Corruption or Compliance: Weighing the Costs."

The survey, which interviewed 1,186 business leaders in large organizations across 33 countries, showed that almost a quarter of respondents (23 percent) admitted their organization had been approached to pay a bribe in order to retain or win business in the last two years. Fully 15 percent of U.S. respondents said they had lost business to a competitor who had paid a bribe.

U.S. companies still not doing enough to understand risks, especially overseas

U.S. companies’ experiences of illegal business practices are lower than the global average. However, bribery and corruption still play a role in the conduct of business, particularly in overseas markets.

Fifteen percent of all U.S. respondents said their organization had experienced at least one incident of bribery or corruption in the last two years, compared to 6 percent in Germany and 6 percent in France. The global average was 24 percent, highlighting the increased risks of doing business outside the U.S. and Western Europe.

Thirteen percent of U.S. respondents admitted their organization had been asked to pay a bribe to retain or win business in the last two years, compared with 16 percent in Germany, 11 percent in the UK and 10 percent in France.

Dale Kitchens, who leads the fraud and investigations team in Ernst & Young’s Fraud Investigation and Dispute Services practice in the Americas, says business leaders and board members face daunting challenges around their compliance obligations in the current environment of heightened enforcement.

“Best practices in anti-bribery compliance require companies to take a much more comprehensive view of the way bribery and corruption affect their business,” said Kitchens.

Kitchens also notes that although companies recognize the risks of corruption and are doing more to combat it – more than half of respondents are increasing training on the subject – knowledge of relevant anti-corruption legislation remains scant, undermining compliance efforts.

High-profile investigations into corrupt practices have dominated the headlines in the past two years, as the U.S. Department of Justice has taken a more aggressive and extra-territorial approach to enforcing the U.S. Foreign Corrupt Practices Act (FCPA). Yet a staggering 84 percent of all respondents globally claimed to know little to nothing about the FCPA, compared with 52 percent in the U.S.

“It is clear from the survey results that global companies subject to anti-bribery legislation and FCPA do not fully understand the details of their requirements,” Kitchens said.

Rich Corgel, an executive director in the Fraud Investigation and Dispute Services practice for Ernst & Young, says companies cannot afford to ignore the obligations associated with the FCPA and other anti-bribery laws.

"Non-compliance can lead to significant penalties and fines for U.S. companies, as well as expensive litigation, court-appointed monitors, and in some cases even imprisonment for violators. Unless companies and their executives fully understand anti-bribery legislation and the requirements of FCPA, they run unnecessary risks,” says Corgel.

Ethical behavior not just about staying on the right side of the law

“Despite the best efforts of some governments, non-governmental organizations and law enforcement agencies, the risk of bribery and corruption remains prevalent," said Kitchens. "Awareness, education and control are the most effective methods for dealing with corrupt financial practices. Promoting ethical behavior in your organization – making a difference – is not just about staying on the right side of the law. It’s good business.”

To create the survey, researchers conducted 1,186 telephone interviews with senior executives in large organizations, based in 33 countries. Interviews were conducted between November 2007 and February 2008. Interviewees were senior financial and risk managers, as well as heads of legal, compliance and internal audit teams.