Navigating today’scomplex business risksEurope, Middle East, India and AfricaFraud Survey 2013
Contents1 Foreword2 Executive summary4 Managers feel increased pressure to deliver growth8 Unethical business practices — ...
ForewordThe results also show that many in business are eitherignoring, or are blind to, these risks. We continue tosee to...
2 Europe, Middle East, India and Africa — Fraud Survey 2013Executive summaryOur survey of over 3,000 board members, manage...
3Executive summaryNavigating the risksCompliance messages are getting through toemployees. For example, the majority of re...
4 Europe, Middle East, India and Africa — Fraud Survey 2013Managers feel increased pressureto deliver growthPressure in ra...
5Figure 2Feeling the heatover the next 12 months65%Russia66%Greece74%India79%Kenya74%Norway80%Ireland75%Nigeria79%South Af...
6 Europe, Middle East, India and Africa — Fraud Survey 2013Cutting costs — increasing risk?Is management cutting costs and...
7The incentive for unethical conduct can bestrong when personal remuneration is at stakeand pressure to deliver growth is ...
8 Europe, Middle East, India and Africa — Fraud Survey 2013It is more pronounced in rapid-growth markets,where over a quar...
9Unethical businesspractices — spotlighton fraudFigure 5Promoting the business or “cooking the books”% AppliesDeveloped Ra...
10 Europe, Middle East, India and Africa — Fraud Survey 2013Unethical businesspractices — spotlighton fraudIs management a...
11
12 Europe, Middle East, India and Africa — Fraud Survey 2013Bribery and corruption —a stubborn stainOur results show that,...
13Bribery andcorruption —a stubborn stainFigure 7Compliance message getting through% AppliesDeveloped Rapid-growth55 5849 ...
14 Europe, Middle East, India and Africa — Fraud Survey 2013Our own experience of investigations across theseregions, as w...
15Given the perception that bribery and corruption can be prevalent in rapid-growth markets, it is importantfor businesses...
16 Europe, Middle East, India and Africa — Fraud Survey 2013Compliance programs —always more to doThere is clearly a risk ...
17Compliance programs— always more to doFocus is too narrowThe results also raise questions over the breadth ofthe complia...
18 Europe, Middle East, India and Africa — Fraud Survey 2013Figure 13Awareness of compliance programs by functionTotalOper...
19Compliance? Not my responsibilityWe have seen a widespread reduction, for thosecountries we surveyed in our 2011 Europea...
20 Europe, Middle East, India and Africa — Fraud Survey 2013Conclusion — navigating the risks1Own the problemThe survey re...
21Conclusion —navigating the risks2Deal with the issues — make compliance relevantFewer than half of our respondents thoug...
22 Europe, Middle East, India and Africa — Fraud Survey 2013Table 1 — Increasing nancial pressureManagers at our business ...
23Table 4 — Increased scrutiny for multinationalsin rapid-growth marketsAuthorities in this country regulate foreign busin...
24 Europe, Middle East, India and Africa — Fraud Survey 2013Survey approachBetween November and December 2012, our researc...
25The Ernst & Young Fraud Investigation & Dispute Services practice has global reach.See below for a list of our country a...
Ernst & YoungAssurance | Tax | Transactions | AdvisoryAbout Ernst & YoungErnst & Young is a global leader in assurance,tax...
Upcoming SlideShare
Loading in …5
×

Navigating todays complex_business_risks

1,296 views

Published on

Published in: Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,296
On SlideShare
0
From Embeds
0
Number of Embeds
709
Actions
Shares
0
Downloads
5
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Navigating todays complex_business_risks

  1. 1. Navigating today’scomplex business risksEurope, Middle East, India and AfricaFraud Survey 2013
  2. 2. Contents1 Foreword2 Executive summary4 Managers feel increased pressure to deliver growth8 Unethical business practices — spotlight on fraud12 Bribery and corruption — a stubborn stain16 Compliance programs — always more to do20 Conclusion — navigating the risks22 Selected country results24 Survey approach25 Contact informationEurope, Middle East, India and Africa — Fraud Survey 2013
  3. 3. ForewordThe results also show that many in business are eitherignoring, or are blind to, these risks. We continue tosee too many executives thinking fraud and corruptionare problems faced only by other companies or in othersectors. We continue to see individuals espousing theview that compliance programs are irrelevant to theirroles. And we continue to see business leaders failing toask enough questions — whether about the third partiesbeing presented with from other parts of the business.This is particularly the case in rapid-growth markets.Given these results, we have also provided details ofsome features that we have observed in businessesthat effectively manage fraud, bribery and corruptionrisks. Successful businesses consistently acknowledgethat the risks are real. And then they never stop askingquestions, there is a high risk that you are overlookingSincerelyNone of us can be in any doubt aboutthe level of pressure on today’s businesses.All are operating in extremely challengingconditions, with instability across manymarkets, sluggish or minimal growth inothers and an aggressive enforcementenvironment around the world.Our survey asked over 3,000 board members,executives, managers and their teams across36 countries about the nature of this pressure.We wanted to understand how it was being feltand its impact on business conduct.The results make for uncomfortable reading.We found that executives and their teams areindeed under increased pressure — and it is beingfelt personally. They are also bleakly realistic aboutthe market challenges they face.and improved performance in this environment, analarming number appear to be comfortable with oraware of unethical conduct. This includes recordingrevenues early, underreporting costs or encouragingcustomers to buy unnecessary stock. This is coupledwith the perception that bribery and corruption remainwidespread in several markets.Whether this behavior is driven by pressure to deliverincreased personal recognition and reward, the factthat it is as widespread as our results suggest will beof real concern to management and boards.David L. StulbGlobal LeaderFraud Investigation & Dispute Services142%of board directors andsenior managers areaware of some typereporting in theircompany, page 857%of respondents feelthat corrupt practicesare widespread in theircountry, page 1349%of sales staff do notconsider their company’santi-corruption policy tobe relevant to their work,pages 18 and 19
  4. 4. 2 Europe, Middle East, India and Africa — Fraud Survey 2013Executive summaryOur survey of over 3,000 board members, managersand their teams delivers three clear messages:Executives and their teams are under increasedpersonal pressure to produce growth in extremelychallenging conditions.Unethical conduct — including fraud, bribery andcorruption — in response to this pressure is not just aFifty-seven percent believe that bribery and corruptionare widespread in their country.Compliance programs work, but not well enough.Companies that do not keep asking the right questions— and demanding answers — are exposing themselvesFeeling the pressureAccording to our survey, the vast majority of businessesare under increased pressure to meet the targetsof their investors and owners, and deliver improvedThey are also facing pressure to cut costs —and individuals are feeling this personally throughpressure on their salaries and bonuses.There is little optimism among our respondents thatmarket conditions will improve over the next year.So, if the market is not going to pick up, how doesmanagement deliver improved performance? Do theyexpand into rapid-growth markets, where winningcontracts can go hand-in-hand with corruption?Do they look to further reduce costs, putting pressureon suppliers or staff? Or do they take a much biggerrisk? Do they distort performance reports?Strain on ethical behaviormanipulation of some kind occurring in their owncompanies. In rapid-growth markets, over a quarterof respondents are witnessing manipulation such asoverstated sales and understated costs.Furthermore, management is clearly aware of thisissue. Forty-two percent of board directors andsenior managers are aware of some type of irregularthis amounted to almost a quarter of respondents.Overall, more than a third of respondents believethat companies in their countries often reportedwas. While this isn’t necessarily consistent with ourexperience in dealing with senior executives, if thesedeeply troubling. Businesses have good reason to lookcritically at what is being reported to headquarters andask the question: do these results add up?The risk from misreporting is compounded by the riskto the business from corrupt practices. Our surveywho see bribery and corruption as acceptable.In rapid-growth markets, 67% think that briberyand corrupt practices are widespreadMore than a quarter of sales and marketingrespondents consider offering personal gifts orservices to win or retain business as acceptable —almost double that of all respondentsYet, as in previous surveys, many respondents appear tobe in denial about how close bribery and corruption areto home. They see it happening widely in their country,but when asked about its occurrence in their sector, theyhold a different view. The results seem to say: “Everyoneelse is doing it, but not me or my business.”The reality, however, is more likely to be that if it ishappening in your country, it is happening in yoursector. And if it is happening in your sector, it maywell be happening in your business.
  5. 5. 3Executive summaryNavigating the risksCompliance messages are getting through toemployees. For example, the majority of respondentsare aware that their company has an anti-bribery policy.But these results do not tell the whole story.First, management appears to think complianceprograms are more effective than they actually are.Sixty-seven percent of board directors and seniormanagers believe their commitment to anti-briberyand anti-corruption policies has been stronglycommunicated, compared with 44% of other employees.Second, compared to our 2011 Survey, fewer peopleconsider their company’s compliance program to berelevant to their work. Fewer than half thought thattheir colleagues would say it was fairly or very relevant.Third — and perhaps of most concern to complianceexecutives — over one in six respondents feel theircompliance program harms their competitiveness.This raises the question: what choices do theseindividuals perceive when conducting business?Are they stuck in a mind-set of false choice betweenbeing compliant and winning the work?Businesses will always manage these risks differently.let alone across sectors and geographies. But webribery and corruption most effectively share somecommon features:They own the problem. Boards and senior managementacknowledge that the risk is real for them andtheir business.They deal with the issues. Teams across businesses,functions, geographies and grades understand thatthe risks are relevant to them and their work.The costsof fraud, bribery and corruption are understood at anindividual level. Behavior is not only limited by controls,but is driven by a common culture.They focus effort.of shrinking resources is a necessity in today’sresources on these is therefore increasingly important.They ask questions and demand answers. Managementstones, knowing that what is hidden cannot be ignored.of respondents in rapid-growth markets stated thatmanagement is asking fewer questions regarding thereliability of revenue.The message from our survey is this: businessesaction to navigate these risks.“Management appears to think thatcompliance programs are more effectivethan they actually are.”
  6. 6. 4 Europe, Middle East, India and Africa — Fraud Survey 2013Managers feel increased pressureto deliver growthPressure in rapid-growth marketsperformance from rapid-growth markets is being feltdirectly by managers in those regions. Over a third ofrespondents “strongly agree” that management willperformance over the next year.It is possible that the economic conditions in thesemarkets will provide increased opportunities. In contrastto the mature markets, 47% of respondents in rapid-growth economies think market conditions will improveover the next year.However, our survey also shows that, in rapid-growthmarkets, there remains a greater perceived risk thatbribery or other unethical practices may be used towin business. Businesses in these markets are alsoseen to be more likely than those in mature marketsand geographies know: they and their employees arepersonally under increased pressure to produce growth —in extremely challenging conditions.Markets remain volatile and, in many countries, thereis little optimism that conditions will improve in theshort term. Even so, the vast majority of businesses areunder increased pressure to meet the targets of theirinvestors and owners.businesses feel under pressure to deliver improvedrealities of the market challenges they face. Only 22%of respondents in mature markets believe that marketconditions will improve over the next year.it through expansion into rapid-growth markets, wherewinning contracts can sometimes go hand-in-hand withbribery or corruption? Or do they further reduce costs,putting pressure on suppliers or their own staff, forexample by squeezing salaries and bonuses?As getting more for less becomes more challenging,some managers may see another option: meetingtargets by misrepresenting performance.Figure 1Increasing nancial pressureWe are under increased pressure tomeet quarterly or half-yearly targetsfor reporting to investors/owners*Managers at our business will be underincreased pressure to deliver good nancialperformance over the next 12 monthsMarket conditions for our business willimprove over the next 12 months% Disagree % Neither agree nor disagree % Agree601615322827701512Q: To what extent do you agree or disagree with each of the following statements?Base: All respondents (3,459)The “Don’t know” percentages have been omitted to allow better comparison between the responses given.* Statement only asked if company is listed on the stock exchange (821)
  7. 7. 5Figure 2Feeling the heatover the next 12 months65%Russia66%Greece74%India79%Kenya74%Norway80%Ireland75%Nigeria79%South Africa60%Average scoreacross all countriesQ: To what extent do you agree or disagree with the following statement? Managers at our business will be under increased pressure to delivergood nancial performance over the next 12 months.Base: Ireland (100); Greece (100); Russia (100); Norway (100); Nigeria (103); South Africa (100); Kenya (100); India (100)A breakdown for all countries included in the survey is shown in “Selected country results” on p22 (Table 1).Managers feelincreased pressureto deliver growth
  8. 8. 6 Europe, Middle East, India and Africa — Fraud Survey 2013Cutting costs — increasing risk?Is management cutting costs and putting pressure onteams in ways that could increase the risk of unethicalpractices or misrepresented performance?Our survey asked about the downward pressure onsalaries and bonuses. Board and senior managementlevel respondents were understandably most aware ofreductions in or removal of bonuses. The vast majoritywere seeing these cost-cutting strategies in theirbusiness; only 25% were not aware of any.Below board and director level, however, we still foundthe majority of respondents observing downwardpressure on pay and remuneration. In rapid-growthindividuals are seeing more reductions in theirremuneration than in developed markets. In particular,reductions or removal of bonuses appear to be hittingbusinesses in rapid-growth markets more thanmature markets. In India, 43% of respondents werewitnessing this.Figure 3Downward pressure on remunerationBoard director/seniormanagementOthermanagementOther non-managementemployees25 25 2231 26 1826 28 1624 19 1917 19 1772 69 5423%59%21%20%19%17%Pay freezesReduction of bonusesPay rises below the rate of in ationPay cutsRemoval of bonusesAware of at least one of theseQ: Are you aware of any of the following affecting people at the department or division of the company you work for in the last 12 months?Base: All respondents (3,459); Board director/senior management (246); Other management (769); Other non-management employees (2,444)The “Don’t know” and “Not aware of any of these” percentages have been omitted to allow better comparison between the given responses.Greater pressure to deliver growth and downwardpressure on reward can be a risky combination.Both pressures can, in some cases, drive actions thatcould damage the business, such as fraud, bribery andcorruption. The incentives for unethical conduct canbe strong when personal remuneration is at stake andpressure to deliver growth is being felt directly. At thesame time, a focus on growth and cutting costs canweaken the systems and teams in place to preventand detect these actions.Any sense that unethical conduct is acceptable willminority of respondents across markets and sectorscontinue to see unethical conduct in their organization.Managers feelincreased pressureto deliver growth
  9. 9. 7The incentive for unethical conduct can bestrong when personal remuneration is at stakeand pressure to deliver growth is being felt directly.
  10. 10. 8 Europe, Middle East, India and Africa — Fraud Survey 2013It is more pronounced in rapid-growth markets,where over a quarter of respondents are witnessingthis behavior.The most common examples reported relate tooverstated sales and understated costs.action has been intense — 9% of respondents hadseen revenues recorded before they should havebeen; 7% were aware of underreporting of costs;and 9% knew of customers being sold unnecessaryproducts to meet short-term sales targets.services companies hard, with a number ofinstitutions paying compensation to customersfor mis-selling products and services, as well asIn such circumstances boards and audit committeesshould ask tough questions of management and othersabout their company’s results.executives, managers and their teams willing to cutcorners or even act illegally to meet increasinglyaggressive targets?Our results show that fraud or other unethical conductis not just a hypothetical risk. There is pressure onexecutives and businesses to deliver results in extremelychallenging conditions. There is also a perception thatunethical conduct is widespread in some countries.conduct is occurring in their own businesses in an effortDo key stakeholders have a completeand accurate picture?within companies may be distorted:manipulation of some kind occurring in theirUnethical business practices —spotlight on fraudFigure 4Unethical conduct by organizations including directors and senior managersDeveloped Rapid-growthBoard director/seniormanagementOthermanagementOther non-managementemployees7 13 23 14 66 9 21 10 64 10 18 10 413 26 42 27 149%8%6%20%Revenues recorded beforethey should be to meetshort-term nancial targetsUnderreporting of costsincurred to meet short-termnancial budgetsCustomer required to buyunnecessary stock to meetshort-term sales targetsave heard of at least oneof the above happening atour companyQ: Which, if any, of the following have you heard of happening at your company in the last 12 months?Base: All respondents (3,459); Developed (1,500); Rapid-growth (1,103); Board director/senior management (246); Other management (769);Other non-management employees (2,444)The “Don’t know” and “Not heard of any of the above” percentages have been omitted to allow better comparison between the given responses.
  11. 11. 9Unethical businesspractices — spotlighton fraudFigure 5Promoting the business or “cooking the books”% AppliesDeveloped Rapid-growth31 45Companies in this country often report theirnancial performance as better than it is% Applies% Does not apply382753%Kenya51%Austria48%SaudiArabia46%Greece54%India61%Russia68%Nigeria61%SpainQ: Can you indicate whether you think the following applies, or does not apply, to your country or industry? Companies in this country oftenreport their nancial performance as better than it is.Base: All respondents 2013 (3,459); Developed (1,500); Rapid-growth (1,103); Austria (100); Greece (100); India (100); Kenya (100); Nigeria (103); Russia(100); Saudi Arabia (100); Spain (100)The “Don’t know” percentages have been omitted to allow better comparison between the responses given.A breakdown for all countries included in the survey is shown in “Selected country results” on p22 (Table 2).
  12. 12. 10 Europe, Middle East, India and Africa — Fraud Survey 2013Unethical businesspractices — spotlighton fraudIs management aware and takingnecessary action?These results are concerning enough on their own,but our survey also shows that management is clearlyaware of this issue.Forty-two percent of directors and senior managementof respondents are aware.To understand whether these misstatements —overstated by companies in their countries.Thirty-eight percent of all respondents — and 45% ofthose in rapid-growth markets — believe companiesof respondents in Spain believed companies oftenexaggerated their results — showing that the practiceis not limited to rapid-growth markets.The results also serve as a warning for multinationalcompanies with subsidiaries in, for example, Indiaexaggerated), Russia (61%) or Nigeria (68%).These businesses have good reason to look criticallyat what is being reported back to the center fromother jurisdictions.for businesses to understand performance.However, if management does not conduct alocal operations, there is a risk that poorperformance can be hidden and managementintervention delayed.From our observations during fraudor early recognition or hiding costs can be theresult of a variety of practices. These includeraising invoices early and using provisions toasks the right questions:Are reported results consistent with the cashrequirement and cash performance of thebusiness?Are balance sheet metrics, such as inventoryand accounts receivable, keeping pace withchanges in sales?How does performance compare to otherbusiness units? Are relative changes in linewith your expectations? Is one businessperforming exceptionally?Is the business unit responsive to moredetailed questions about reported results?What visibility do you have over aspects ofindependently such as cash and inventory?How do reported results compare to otherinformation such as recruitment patterns orrecent new customer wins?Does the business regularly report results inline with budget?
  13. 13. 11
  14. 14. 12 Europe, Middle East, India and Africa — Fraud Survey 2013Bribery and corruption —a stubborn stainOur results show that, despite the existence ofcompliance programs and awareness of them, abusiness practices as acceptable. They are willing, forexample, to make cash payments or offer personal giftsor entertainment to win or retain business. Complianceteams should therefore be under no illusion; there isstill some way to go:More than a quarter of sales and marketingrespondents consider offering personal gifts orservices to win or retain business as acceptable —almost double that of all respondents.In rapid-growth markets, over half of respondentsmay condone one or more of the unethical practicesdescribed in our survey.In India, over a third of respondents feel offeringcash payments to win or retain business can beCompliance programs developed to counter briberyand corruption have been in the spotlight for severalyears. Our survey results show that, even thoughproportion of respondents still see unethical behavioras acceptable.When asked if certain unethical practices would beacceptable to help a company win or retain business,52% of respondents did not feel any of them to beGlobal FraudSurvey published in 2012 and our 2011 EuropeanFraud SurveyIt is clear that the compliance messages are gettingthrough to employees. A majority of respondents areaware that their business has an anti-bribery policyand many are aware of its content.However, when asked about the prevalence of unethicalpractices in their country, respondents give a verydifferent picture of the risk. In rapid-growth markets,67% think that bribery and corrupt practices arewidespread. In mature markets, more than a thirdthink the same.Figure 6Unethical practices seen in organizationsSales function Developed Rapid-growth28 15 2017 13 2318 12 153 1 77 14 1355 42 58Offering personal gifts/servicesto win or retain businessOffering cash payments towin or retain businessOffering entertainment towin or retain businessDeliberately misstating acompany’s nancial performance13%16%17%4%Don’t know 13%At least one of the above 48%Q: Which, if any, of the following do you feel can be usti ed if they help a business survive an economic downturn?Base: All respondents 2013 (3,459); Sales (238); Developed (1,500); Rapid-growth (1,103)
  15. 15. 13Bribery andcorruption —a stubborn stainFigure 7Compliance message getting through% AppliesDeveloped Rapid-growth55 5849 5146 5337 4329 4832 3933 35We have an anti-bribery/anti-corruptionpolicy and code of conductSenior management has stronglycommunicated its commitment to ouranti-bribery/anti-corruption policiesThere are clear penalties for breaking ouranti-bribery/anti-corruption policiesThe company would support people who reportedcases of suspected fraud, bribery or corruptionThe company has taken action againstemployees for breaching our policiesWe have a whistle-blowing hotline to reportcases of fraud, bribery or corruptionThere is training on our anti-bribery/anti-corruption policies% Does not apply % Applies5718502149204023382034373338Q: For each of the following, please can you tell me whether it applies, or does not apply, to your organization or whether you don’t know?Base: All respondents (3,459); Developed (1,500); Rapid-growth (1,103)The “Don’t know” percentages have been omitted to allow better comparison between the responses given.It couldn’t happen hereAs in previous surveys, many of our respondentsappear to be in denial about how close bribery andcorruption are to home. They see it happening widelyin their country, but when asked about its occurrencein their sector, they hold a different view. The resultsseem to say: “Everyone else is doing it, but not me ormy business.”For example, 57% of all respondents feel that corruptpractices are commonplace in their country. But only26% feel it is common to use bribery to win contractsFigure 8Acceptable practices in developed and rapid-growth markets% AppliesDeveloped Rapid-growth39 67Bribery/corrupt practices happen widelyin business in this country% Does not apply % Applies5727Q: Can you indicate whether you think the following applies, or does not apply, to your country or industry?Base: All respondents (3,459); Developed (1,500); Rapid-growth (1,103)The “Don’t know” percentages have been omitted to allow better comparison between the responses given.
  16. 16. 14 Europe, Middle East, India and Africa — Fraud Survey 2013Our own experience of investigations across theseregions, as well as the evidence from publiclyreported regulatory investigations, settlements andprosecutions, indicates that most sectors are proneto unethical business practices.Favoring the home team?It cannot be assumed that a large multinational will begiven an easier time by local regulators just because ofits importance to the local economy. Our survey resultssuggest the opposite: multinationals may betargeted by regulators in rapid-growth markets.We asked respondents about regulators in their owncountries and the extent to which they focused onforeign companies. The results indicate that businessesheadquartered in mature markets face increasedscrutiny from regulators in rapid-growth markets.A quarter of respondents in rapid-growth marketsagree that their domestic authorities regulate foreignbusinesses more closely than local ones.Figure 9The corruption perception gapTotalRomaniaSouth AfricaHungaryPortugalCzech RepublicCroatiaKenya% Applies: In our sector, it is common practice to use bribery to win contracts% Applies: Bribery/corrupt practices happen widely in business in this country57266119651970297224733190409434Q: For each of the following, can you indicate whether you think it applies, or does not apply, to your country or industry?Base: All respondents (3,459); Romania (100); South Africa (100), Hungary (100); Portugal (100) Czech Republic (100); Croatia (100); Kenya (100)The “Don’t know” percentages have been omitted to allow better comparison between the responses given.A breakdown for all countries included in the survey is shown in “Selected country results” on p23 (Table 3).It is therefore essential that multinationals understandthe rapid-growth markets in which they operate aswell as, if not better than, more developed markets.However, the survey results raise questions aboutwhether this is happening in practice. Responses fromthose in rapid-growth markets with local headquarterssuggest a much higher awareness of fraud andcorruption risk than those based, for example, inWestern Europe. Forty-six percent agree that companiesperformance, compared with only 29% of those withheadquarters in Western Europe. Nearly three-quartersagree that corrupt practices are widespread in businessin their country, compared with 58%.Bribery andcorruption —a stubborn stain
  17. 17. 15Given the perception that bribery and corruption can be prevalent in rapid-growth markets, it is importantfor businesses to be vigilant when considering expansion through acquisition in these markets. The phrase“buyer beware” has never been more appropriate.Businesses need to:Understand who the business partners and agents of the acquired business are through risk-focuseddue diligenceUnderstand how key operating licenses, contracts or resources were won by the companyUnderstand how key leaders in the business are remunerated and how this might affect behaviorLook for evidence of robust action where any incidents of impropriety have occurred previously.Has the tone in the acquired business been appropriately set from the top?and being incurred in marketing expensesFigure 10Increased scrutiny for multinationals in rapid-growth markets% AgreeDeveloped Rapid-growth13 2511 2111 22Authorities in this country regulate foreignbusinesses more closely than local businessesIf we followed our anti-bribery andanti-corruption policy very closely, it wouldharm our competitiveness in this marketForeign companies are at a disadvantage in thismarket because they are more heavily regulatedcompared to local companies% Disagree % Agree193417441638Q: To what extent do you agree or disagree with each of the following statements?Base: All respondents (3,459); Developed (1,500); Rapid-growth (1,103)The “Don’t know” and “Neither agree nor disagree” percentages have been omitted to allow better comparison between the responses given.A breakdown for all countries included in the survey is shown in “Selected country results” on p23 (Table 4).Bribery andcorruption —a stubborn stain
  18. 18. 16 Europe, Middle East, India and Africa — Fraud Survey 2013Compliance programs —always more to doThere is clearly a risk that the pressure to deliverresults, coupled with the perceived irrelevance andperformance-hindering nature of compliance programs,could lead to a tacit acceptance of unethical behavior.Programs may be ignored or circumvented becauseSenior management unawareof the issuesThe majority of respondents are aware that theircompany has an anti-bribery policy. Other responsessuggest that compliance programs are reasonablyembedded. But these results do not tell the whole story.senior management and employees when it comes tothe effectiveness of compliance programs. Sixty-sevenpercent of directors and senior managers believe thattheir commitment to anti-bribery and anti-corruptionpolicies has been communicated strongly, comparedwith 44% of other employees. Sixty percent of directorsand senior managers believe that their company wouldsupport people who reported cases of suspected fraud,bribery or corruption, whereas only 34% of otheremployees agree.This indicates that employees may lack trust in theirorganization when reporting such activities, a concernthat is made more dangerous if senior management turna blind eye to it. Senior management responses suggestthat they are not receiving the right kind of feedback onthe implementation of their compliance programs.Our survey results suggest an environment ofpressure to deliver results, with respondents perceivingmisstatement, bribery and corruption as widespread.It therefore remains essential that compliance programsare continuously strengthened and improved to reducethe risk of, and increase the detection of, fraud andcorruption. This is challenging in an environment ofare under increasing pressure to deliver moreeffective programs.Compliance programs therefore need to be highlyfocused. This can be achieved through a tailoredthrough the use of, for example, forensic data analyticsto highlight business risk. However, complianceprograms aimed at deterring unethical business conductare still not working as effectively as they should.Our survey raises four issues that those responsible forcompliance programs need to address:Senior management thinks programs are moreeffective than they actually arePrograms are too narrow or not seen as relevantPrograms are perceived as constrainingcompetitiveness in the marketThe increased risk due to current marketconditions has not been matched by increasedcompliance efforts
  19. 19. 17Compliance programs— always more to doFocus is too narrowThe results also raise questions over the breadth ofthe compliance programs that are in place. Fewer thanhalf of respondents knew that their company’s policycontains guidance on gifts or hospitality, and less thana quarter knew of policies on political contributions.More than half of respondents do not know whethercompliance programs are in place, there are stillfundamental gaps in the areas covered by these policies.We asked respondents whether they thought that theircompany’s compliance program was effective in theirrelevant and effective in their markets.Figure 11Compliance perceptions gap% AppliesBoard director/seniormanagementOthermanagementOther non-managementemployees74 69 5167 63 4465 61 4360 51 3457 50 3349 44 3050 42 29% Does not apply % Applies5718492023 40382037 34333821 50We have an anti-bribery/anti-corruptionpolicy and code of conductSenior management has stronglycommunicated its commitment to ouranti-bribery/anti-corruption policiesThere are clear penalties for breaking ouranti-bribery/anti-corruption policiesThe company would support peoplewho reported cases of suspected fraud,bribery or corruptionThe company has taken action againstemployees for breaching our policiesWe have a whistle-blowing hotlineto report cases of fraud, briberyor corruptionThere is training on our anti-bribery/anti-corruption policiesQ: For each of the following, please can you tell me whether it applies, or does not apply, to your organization or whether you don’t know?Base: All respondents (3,459); Board director/senior management (246); Other management (769); Other non-management employees (2,444)The “Don’t know” percentages have been omitted to allow better comparison between the responses given.Companies are struggling to apply global compliancewhile managing the risks that arise from allowingof respondents agree that their company’s compliancebribery and corruption are prevalent in local markets,address corruption risks robustly.Compliance programs aimed at deterringand preventing unethical businessconduct are still not working aseffectively as they should.
  20. 20. 18 Europe, Middle East, India and Africa — Fraud Survey 2013Figure 13Awareness of compliance programs by functionTotalOperationsCustomer serviceSalesITFinance% Not relevant% Not aware we had a policy % Relevant473023483121492922542719632314512920Q: Thinking about your company’s policy on anti-bribery/anti-corruption, how relevant do you think most of your colleagues would say it is inrelation to their own work?Base: All respondents (3,459); Operations (536); Customer service (516); IT (299); Finance (289); Sales (238)Figure 12Relevance and exibility of compliance frameworksDeveloped Rapid-growth44 3612 2512 124 77 6It is relevant and effective in our marketIt is good in principle, but does not workIt is exible to our local needsIt needs to be more exibleto our local needsNone of these applies to our policy38%20%12%6%6%Q: Which, if any, of the following apply to your company’s anti-bribery/anti-corruption policy?Base: All respondents working for a company with an anti-bribery policy in place: 2013 (1,955); Developed (829); Rapid-growth (639)The “Don’t know” and “Not applicable” percentages have been omitted to allow better comparison between the responses given.Compliance programs— always more to do
  21. 21. 19Compliance? Not my responsibilityWe have seen a widespread reduction, for thosecountries we surveyed in our 2011 European FraudSurvey, in the percentage of respondents who considertheir company’s anti-bribery and anti-corruptionprogram to be relevant to their work. Fewer thanhalf of respondents think their colleagues would sayit was relevant.Arguably, the sales function should recognize theimportance and relevance of a company’s anti-bribery policy more than any other. Just under halfof respondents from this function do not consider thepolicy particularly relevant to their role and in manycases are not even aware of its existence.Compliant business equals lesscompetitive business?Probably of most concern to compliance executivesis the view among over one in six respondents thatfollowing their compliance policy very closely harmstheir competitiveness in the market.So employees falsely perceive there to be a choice:implement compliance policies to the letter and risklosing opportunities, or take the risk of non-complianceand keep a competitive edge. Typical remunerationmechanisms are likely to encourage the unethicalchoice; employees rarely get a pay rise or promotionsimply for complying with policy. In the context ofwidespread pay cuts, the temptation to achieve resultsthrough bribery and corruption is even greater.Businesses need to consider how they incentivizeemployees to act ethically. As they focus more closelyon driving ethical growth for shareholder value, theabsence of mechanisms to recognize ethical behaviorseems a missed opportunity.Increased effort not keeping pacewith the challengeGiven the enforcement environment, it is unsurprisingthat a third of respondents feel their company’s effortsto combat fraud, bribery and corruption have increasedover the last few years.areas are not getting the focus that they should,including checks on third parties and questions relatingto the reliability of revenue recording. For example,only 12% of respondents indicate that they had beenasked for information on the identity of third parties,customers or suppliers.Given there may be some level of misreporting beingobserved in businesses especially in rapid-growthin these markets feel that management is asking fewerquestions regarding the reliability of revenue.Equally surprising is the 22% of respondents inrapid-growth markets who feel that their business isless thorough about checking on third parties, givenenforcement actions.delivery of effective compliance programs is understrain. For example, in several countries a highpercentage of respondents state that their companyhas an anti-bribery policy, senior management hascommunicated its commitment and there are clearpenalties for breaching the policy. Yet in these samecountries, there is also a high percentage that thinkbribery and corruption are widespread, or think it iscommon practice to use bribery to win contracts.The damage to shareholder value that can arise as aresult of misreporting or corruption can be far greaterCompliance programs— always more to do
  22. 22. 20 Europe, Middle East, India and Africa — Fraud Survey 2013Conclusion — navigating the risks1Own the problemThe survey results show that compliance programsare not working as effectively as they should.that management is serious about the issue.In businesses where the risks of fraud, bribery andcorruption are properly acknowledged, compliance isnot seen as a “tick-box” exercise. In these businesses,management owns the problem, and boardschallenge management to ensure that they areprioritizing risk and dealing with issues effectively.6Ask questions, demand answersForty-two percent of directors and senior managersreporting in their company. All senior managersshould be asking tough questions about thereporting they are receiving.respondents in rapid-growth markets feelmanagement is actually asking fewer questionsregarding the reliability of revenue. This does notrapid-growth markets are more likely to misrepresentCompanies with robust approaches to fraud, briberyand corruption exercise their audit rights on thirdparties and insist that their suppliers regularlyrespond to requests for information.Six steps to help protectyour businessMarket conditions continue to becompanies, particularly those lookingto expand into rapid-growth markets.Bribery and corruption issues aroundthe globe continue to challenge even themost robust compliance organizations.At the same time, regulators across theglobe continue to increase their focus oncorporate and individual misconduct. Ourexperience in conducting fraud, briberyand corruption investigations and assistingmanipulation occurring in their companies.Fifty-seven percent believe bribery andcorruption are widespread in their country.Across jurisdictions, sectors and functions,individuals are feeling increased and directpressure. Some individuals respond tothis pressure by taking short cuts, actingunethically or even illegally. Businessesmanage this risk in many ways, but we haveobserved common features among thosewho manage it most effectively.that unethical conduct could be greater formultinationals headquartered in maturemarkets. Not only is the enforcementenvironment becoming increasinglyaggressive but regulators in rapid-growthmarkets are perceived by a quarter ofrespondents as being more focused on thebehavior of foreign businesses.
  23. 23. 21Conclusion —navigating the risks2Deal with the issues — make compliance relevantFewer than half of our respondents thought that their colleagues would saycompliance was fairly or very relevant to their role. They — including salesprofessionals — think compliance is someone else’s problem.With only 38% of respondents considering their compliance program to berelevant and effective, there is clearly a long way to go for many businesses.Making compliance relevant to local teams does not mean diluting the programrequirements while retaining a robust and consistent approach.3Communicate the risksLosing that deal, missing that target, not deliveringthat growth does not often look like the best optionto an executive. Our survey shows that theseoutcomes may be perceived as the consequenceof ethical conduct.Businesses that have a strong code of ethics arenot just good at controlling behavior. They excelat communicating the risks of unethical conduct.Punishing unethical conduct sends a strongmessage to employees, and these companies arenot afraid to share information on the number ofpeople sanctioned for ethical breaches.4Communicate the bene tsOver one in six respondents think that theircompliance policy harms their competitiveness.However, managing the risk of fraud, bribery andcorruption also helps businesses to succeed inchallenging markets. Managing the risks of third-party relationships effectively, for example, iscritical to conducting business across a wide rangeof markets. Forensic pre-acquisition due diligence —covering, for example, the risk of fraud, corruptionand money laundering — can be the differencebetween a successful transaction and the lossInvestors and regulators are looking for globalcompanies to show their ability to prevent and detectfraud or other unethical behavior. This can often bedemonstrated through an audit of the effectivenessof the compliance function. This has been adoptedby a number of leading companies in Germany, as aresult of the country’s recently adopted compliancemanagement system audit standard.5Focus resourcesfocus on key risks is critical, and begins with understanding where the risks are.respondents in rapid-growth markets, for example, thought their business wascompliance functions unable to cope with the volume of third parties they needto evaluate. Often, this is a result of an ineffective risk-based approach, or afailure to appropriately leverage available technology solutions.Whatever the sector, technology has a key role to play in helping focusresources. The use of forensic data analytics can identify incidences ofanomalous activity and guide more detailed assessments.Protect yourbusiness
  24. 24. 22 Europe, Middle East, India and Africa — Fraud Survey 2013Table 1 — Increasing nancial pressureManagers at our business will be under increasedthe next 12 months% AgreeIreland 80South Africa 79Kenya 79UK 75Nigeria 75Egypt 74India 74Norway 74Slovenia 67Greece 66Italy 65Russia 65UAE 65Croatia 64Sweden 63Hungary 62Netherlands 62All respondents 60Switzerland 60Finland 60Saudi Arabia 58Belgium 57Poland 57France 54Portugal 54Spain 54Slovakia 53Austria 52Germany 52Czech Republic 49Ukraine 44Romania 43Serbia 40Baltic States 39Turkey 32Q: To what extent do you agree or disagree with thefollowing statement.Table 2 — Promoting the business or “cooking the books”as better than it is% AppliesNigeria 68Slovenia 66Russia 61Spain 61Croatia 58India 54Serbia 54Kenya 53Austria 51Ukraine 49Saudi Arabia 48Greece 46Turkey 45Portugal 43Poland 42Egypt 40Italy 40Ireland 38All respondents 38South Africa 35Belgium 34Germany 34Slovakia 33Baltic States 28UK 27UAE 26Czech Republic 25Netherlands 23Hungary 19Sweden 18Romania 17France 16Switzerland 16Norway 10Finland 7Q: Can you indicate whether you think the following applies,or does not apply, to your country or industry?Selected country results
  25. 25. 23Table 4 — Increased scrutiny for multinationalsin rapid-growth marketsAuthorities in this country regulate foreign businessesmore closely than local businesses% AgreeIndia 54Serbia 37Saudi Arabia 36Kenya 36South Africa 29Russia 28Nigeria 26Croatia 25Slovakia 23Baltic States 23Ireland 21UAE 21All respondents 19Poland 19Ukraine 18Egypt 18Norway 17Romania 16Greece 16Netherlands 16France 15Turkey 15Switzerland 15Austria 13Hungary 12Portugal 12Sweden 12Slovenia 12Finland 12Spain 11Germany 11Czech Republic 11Italy 11Belgium 9UK 8Q: To what extent do you agree or disagree with thefollowing statement?Table 3 — The corruption perception gapBribery/corruptpractices happenwidely in businessin this countryIn our sector, it iscommon practiceto use bribery towin contracts% AppliesKenya 94 34Greece 84 29Croatia 90 40Slovenia 96 46Portugal 72 24South Africa 65 19Slovakia 84 41Czech Republic 73 31Romania 61 19Hungary 70 29Nigeria 89 50Serbia 83 44Poland 59 22Spain 65 29Egypt 71 37Italy 60 27Belgium 51 19Austria 46 15All respondents 57 26UK 37 6Ukraine 85 54Baltic States 47 21Ireland 43 17Russia 82 56India 69 44Germany 30 9France 27 7Saudi Arabia 66 46Netherlands 23 4Turkey 55 39Norway 17 2Sweden 12 4Finland 12 8UAE 24 20Switzerland 10 7Q: Can you indicate whether you think the following applies,or does not apply, to your country or industry?Selectedcountry results
  26. 26. 24 Europe, Middle East, India and Africa — Fraud Survey 2013Survey approachBetween November and December 2012, our researchers — the global market research agency Ipsos — conducted3,459 interviews with employees of large companies*in 36 countries by telephone, online or in person. Interviewswere conducted on an anonymous basis using local language in all countries.Participant pro le — region and country,company size, role and sectorNumber of interviewsEastern Europe 1,256Baltic States+100Croatia 100Czech Republic 100Hungary 100Poland 100Romania 100Russia 100Serbia 156Slovakia 100Slovenia 100Turkey 100Ukraine 100Middle East, India and Africa 703Egypt 100India 100Kenya 100Nigeria 103Saudi Arabia 100South Africa 100UAE 100Western Europe 1,500Austria 100Belgium 100Finland 100France 100Germany 100Greece 100Ireland 100Italy 100Netherlands 100Norway 100Portugal 100Spain 100Sweden 100Switzerland 100UK 100Number of employees globally %Above 5,000 431,500 – 4,999 201,000 – 1,499 11500 – 999 10Less than 500 7Don’t know 9Role within organization %Board director 1Senior management 6Other management 22Other employee 65Other 6SectorGovernment and public sector 19Financial services 13Technology, communications and entertainment 10Transportation 10Consumer products/retail/wholesale 9Manufacturing/chemicals 6Power, utilities and extractive industries 6Healthcare and life sciences 5Real estate 43Other sectors 15+Estonia, Latvia and LithuaniaFor the purpose of this report, “developed” countries includeAustria, Belgium, Finland, France, Germany, Greece, Ireland, Italy,Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and UK.The “rapid-growth” countries, taken from our Rapid-Growth MarketsForecast: Winter 2013, include Czech Republic, Egypt, India, Nigeria,Poland, Russia, Saudi Arabia, South Africa, Turkey, UAE and Ukraine.exchange or is a multinational.Results for Serbia and Nigeria were downweighted to 100 interviews per country in aggregated results.
  27. 27. 25The Ernst & Young Fraud Investigation & Dispute Services practice has global reach.See below for a list of our country and territory leaders. For more information seeContact informationLocal contact Name TelephoneGlobal Leader David Stulb +44 20 7951 2456Afghanistan/Pakistan Shariq Zaidi +92 21 3568 6866Argentina Andrea Rey +54 1145 152 668Australia/New Zealand Paul Fontanot +61 2 8295 6819Austria Andreas Frohner +43 1 211 70 1500Belgium Han Wevers +32 2 774 9169Brazil Jose Compagño +55 11 2573 3215Canada Mike Savage +1 416 943 2076Chile Juan Pablo Hess +56 267 61 127China John Auerbach +86 21 2228 2642Colombia Liudmila Riano +57 148 473 51Czech Republic/Slovakia/Slovenia/Serbia/Croatia Dan Bican +420 225 335 849France Philippe Hontarrede +33 1 46 93 62 10Germany Stefan Heissner +49 211 9352 11397Hong Kong SAR Chris Fordham +852 2846 9008Hungary Ferenc Biro +36 1451 8684India Arpinder Singh +91 22 6192 0160Indonesia Amien Sunaryadi +62 21 5289 5000Ireland Julie Fenton +353 1 221 2321Italy Paolo Marcon +39 02 7221 2955Japan Naoki Matsumura +81 3 3503 1334Kenya Peter Kahi +254 20 2715300Luxembourg Gérard Zolt +352 421 241Malaysia Joyce Lim +60 374 958 847Mexico José Treviño +52 55 5283 1450Middle East Bob Chandler +971 4701 0765Namibia Hans Hashagen + 26 461 28 9 1162Netherlands Angelique Keijsers +31 88 40 71812Nigeria Linus Okeke +234 1 463 0479 80Norway Elisabeth Roscher +47 24 002 907Philippines Roderick Vega +63 2 894 8342Poland/Baltic States Mariusz Witalis +48 225 577 950Portugal Joâo Alves +351 21 791 2167Romania/Bulgaria Burcin Atakan +40 21 402 4056Russia/Commonwealth of Independent States Andrey Novikov +7 495 648 9618Singapore John Tudorovic +65 6309 8778South Africa Charles de Chermont +27 11 772 3000South Korea Hee Dong Yoo +82 2 3787 6833Spain Ricardo Noreña +34 91 572 5097Sweden Erik Skoglund +46 8 520 599 39Switzerland Michael Faske +41 58 286 3292Turkey/Greece Dilek Çilingir +90 212 368 5172United Kingdom John Smart +44 20 7951 3401United States Brian Loughman +1 212 773 5343
  28. 28. Ernst & YoungAssurance | Tax | Transactions | AdvisoryAbout Ernst & YoungErnst & Young is a global leader in assurance,tax, transaction and advisory services. Worldwide,our 167,000 people are united by our shared valuesand an unwavering commitment to quality. We makea difference by helping our people, our clients andour wider communities achieve their potential.Ernst & Young refers to the global organization ofmember firms of Ernst & Young Global Limited, eachof which is a separate legal entity. Ernst & YoungGlobal Limited, a UK company limited by guarantee,does not provide services to clients. For moreinformation about our organization, please visitwww.ey.com.About Ernst & Young’s Fraud Investigation &Dispute ServicesDealing with complex issues of fraud, regulatorycompliance and business disputes can detractfrom efforts to achieve your company’s potential.Better management of fraud risk and complianceexposure is a critical business priority — no matterthe industry sector. With more than 2,000fraud investigation and dispute professionals aroundthe world, we assemble the right multidisciplinaryand culturally aligned team to work with you andyour legal advisors. And we work to give you thebenefit of our broad sector experience, our deepsubject matter knowledge and the latest insightsfrom our work worldwide. It’s how Ernst & Youngmakes a difference.© 2013 EYGM Limited.All Rights Reserved.EYG no. AU1577In line with Ernst & Young’s commitment to minimizeits impact on the environment, this document hasbeen printed on paper with a high recycled content.This publication contains information in summary form and istherefore intended for general guidance only. It is not intendedto be a substitute for detailed research or the exercise ofprofessional judgment. Neither EYGM Limited nor any othermember of the global Ernst & Young organization can acceptany responsibility for loss occasioned to any person actingor refraining from action as a result of any material in thispublication. On any specific matter, reference should bemade to the appropriate advisor.www.ey.comED None

×