Fraud in Ukrainian Business 2017 - Kreston GCG Survey

FRAUDIN UKRAINIAN
BUSINESS
Current situation
Fraud prevention mechanisms
Report based on the research of 130 companies in Ukraine
A member of Kreston International | A global network of independent accounting ﬁrms

www.kreston-gcg.com | 3A member of Kreston International | A global network of independent accounting firms
Corporate abuse cannot be
eradicated 100%, but it can be
reduced to its minimum through
preventive measures:
internal controls, reporting
system, punishment of the
wrongdoers.
Kreston GCG, as part of the Kreston
International auditing network, is
presenting the results of an
independent study dealing with the
topicality of the problem of financial
fraud committed in Ukraine. The
study is based on the survey results
obtained from representatives of 130
companies across the entire country,
including those acknowledged as
leaders in the fields of agriculture,
construction, industrial production,
food industry, pharmaceutical
business and many others. The
respondents included leading
experts who occupy key positions:
owners, CFOs, CEOs, Chief Security
Officers, etc.
The key objectives of this study
were:
• to evaluate the extent of corporate
fraud in Ukraine;
• to investigate how the problem is
currently perceived by
representatives of various sectors
and industries;
• to determine the measures
undertaken to prevent and counter
fraud in companies and enterprises
As demonstrated by results from the
survey, the situation in Ukraine is
partly in line with the global
tendencies observed in the
outspread of this phenomenon
among companies. In particular, we
observe similar key industries that
are most vulnerable to fraud
(industrial production), detect the
types of fraud that are most
widespread in the companies
(embezzlement) as well as the most
common instruments for detection of
fraudulent schemes (unofficial
sources of information).
At the same time, we would like to
draw attention to the fact that
representatives of the companies
operating in Ukraine tend to
underestimate the scale of this
problem and the dangers it poses.
Experience shows us that the
absence of personal experience with
a specific type of financial fraud
hardly means it ceases to exist.
Thus, a mere 8.5% of the study
participants expressed their concern
over cybercrime, and after the study
was over, Ukraine witnessed the
massive spread of the Petya
ransomware which paralyzed the
activity of a vast range of Ukrainian
enterprises.
Moreover, based on the comparative
analysis of Ukrainian realities and
international experience,
counter-fraud mechanisms in Ukraine
do not meet the best international
practices yet.
We are grateful to all participants of
the study who made this project
possible. We sincerely hope that the
data obtained will be of some interest
and use on our common way of
counteracting the fraud in Ukrainian
companies.
Sincerely yours,
Artem Kovbel
Partner,
Head of Forensic Department,
Kreston GCG

01
02
03
4 | www.kreston-gcg.com A member of Kreston International | A global network of independent accounting ﬁrms
CONTENTS
01
METHODOLOGY
AND PROFILE
OF THE STUDY PARTICIPANTS
02
SUMMARY
OF STUDY
RESULTS
03 13
09
06
TOPICALITY
OF THE PROBLEM
OF CORPORATE FRAUD
0404 25
COMPANIES’
EFFORTS
TO COUNTERACT FRAUD
0505 29
EXTERNAL CONSULTING
AS A FRAUD
PREVENTION MECHANISM
0606 31ABOUT KRESTON GCG

METHODOLOGY
AND PROFILE
OF THE STUDY PARTICIPANTS

POSITIONS HELD BY RESPONDENTS:
8,7%
CEOs and CFOs Owners
68,5%
54,3% COMPANIES OF NATIONAL SCALE
11,8%
over
1000 employees
21,3%
over
500 employees
28,7%
Trade
37,5%
INTERNATIONAL
COMPANIES130
Companies in Ukraine
RESPONDENTS’
INDUSTRIES:
NUMBER OF
EMPLOYEES
23,3%
Agriculture
17,8%
Food industry

The study conducted by Kreston GCG in June 2017
utilized the online survey method within the company’s
own CRM system. The subjects participating in the study
represented 130 businesses operating in Ukraine, among
them:
• leaders of the Ukrainian agrarian market;
• largest national dairy producers;
• largest manufacturers of construction materials;
• leading international electronics manufacturers;
• largest construction and development companies of
Ukraine;
• leading Ukrainian pharmaceutical and
pharma-distribution companies and many others.
GEOGRAPHY OF THE STUDY
The respondents were surveyed in all regions of Ukraine
(except for the occupied territories). Over half of the
project participants’ operation (54.3%) is spread across
the country. The remaining companies have their own
offices and business units in the regions listed below*:
*A signiﬁcant number of the study participants have business units in more than one region of Ukraine.
National companies: manufacturing, trade, services
represented in more than 10 regions of Ukraine.
Regional companies: manufacturing, trade, services
represented in less than 3 regions of Ukraine.
North 45,7%
Center 29,5%
West 48,8%
South 30,2%
East 40,3%
Proﬁle of companies participating in the study, %: Number of staff employed by the company, %:
International
National
Regional
Up to 100 employees
101-250 employees
251-500 employees
501-1,000 employees
Over 1,000 employees
37,5% 35,4%
11,8%
21,3%
18,9% 12,6%
21,1%
41,4%
METHODOLOGYANDPROFILEOFTHESTUDYPARTICIPANTS

Industries represented by these companies, %:
Positions held by the survey respondents, %:
METHODOLOGYANDPROFILEOFTHESTUDYPARTICIPANTS
0% 5% 10% 15% 20% 25% 30%
Trade
Agriculture
Food Industry
Industrial Production
Transport and Logistics
Technologies
Consumer goods Manufacturing
Oil and Gas
Real Estate
Telecommunication and Networks
Chemical Industry
Pharmaceutical Industry
Mining Industry
Construction
Social sector
Metallurgical Industry
Financial sector
Other
52,8%
15,7%
8,7%
7,1%
3,9%
3,1%
1,6%
7,1%
0%
10%
20%
30%
40%
50%
60%
Chief Financial
Officer
Top manager
(Director
General,
President, etc.)
Owner Internal
Auditor/Controlle
r/Inspector
Chief
Accountant
Deputy
Director, Board
Member
Chief Security
Officer
Other
28,7%
23,3%
17,8%
12,4%
10,1%
10,1%
7,8%
7,0%
5,4%
5,4%
3,9%
3,1%
3,1%
2,3%
1,6%
1,6%
1,6%
2,3%

SUMMARY
OF STUDY
RESULTS
Over 60% of Ukrainian companies have detected fraudulent activities
in their organizational structure.
40% of the companies have encountered cases of embezzlement and ﬁctitious expenses.
20% of the companies have estimated their annual losses at $100,000 to $5 million.

STUDY RESULTS
61,5%
20%
22,8
%
36,4
%
40,5
%
40%
40%
38,2%of all the fraud has been
discovered through
UNOFFICIAL
INTERNAL SOURCES
(I.E., INSIDE INFORMATION FROM EMPLOYEES)
17,1%
of the companies have encountered
embezzlement and fictitious expenses
of the companies have
encountered
cases of fraud
IN SALES
DEPARTMENTS
OF THE COMPANIES
IN UKRAINE
HAVE BEEN
VICTIMS OF
FRAUD
of the companies have estimated their
annual losses resulting from fraud
at $100,000 to $5 million
of the companies have hired external consultants to
conduct financial investigations.Major causes for
seeking external assistance:
- groundless revenue loss
- anonymous reports
- intuitive suspicions that “something is wrong”
of the companies
that regularly
detect fraud have
a high level
of the owners’ engagement
in the operational management
of the companies have identified
the lack of an internal
control system
as one
of the major causes
of fraud
of the companies
that regularly
detect fraud undergo an
annual external audit

TOPICALITY OF THE PROBLEM OF FRAUD IN THE COMPANIES
OPERATING IN UKRAINE
• 61.5% of companies in Ukraine have suffered from
fraud. At the same time, about 40% of the respondents
claim that they have never detected fraud in their
companies. Fraudulent activities are most frequently
reported in the sectors of industrial production, trade,
food industry and agriculture. In a sense, the situation in
Ukraine is in line with global tendencies – according to
the ACFE* Report to the Nations on Occupational Fraud
and Abuse, industrial production is among the top 5
industries most vulnerable to fraud schemes.
• About 40% of the study participants have encountered
embezzlement and incurred ungrounded/unreasonable
expenses. Both in Ukraine and around the world,
embezzlement is the most common type of fraud.
According to the ACFE Global Study, it constitutes 83%
of all the fraudulent activities encountered.
• 60% of the companies that have ever encountered
fraudulent activities in their organizational structure
estimate their average financial losses resulting from
various types of fraud at under $100,000 per year. At the
same time, almost 20% of the companies’ volume of
losses reached $100,000 to $5 million per year.
• A little over 40% of the study participants have
encountered fraud in the sales departments. Other
departments to experience the cases of fraud more often
are: procurement department (as reported by 35.8% of
respondents) and operations department (34.3% of
respondents). On the global scale, in contrast to Ukraine,
the department most vulnerable to fraud is the financial
department.
• In many cases, fraudulent activities were revealed
through internal audit (43% of the cases) and unofficial
internal sources (38% of the cases). Almost one out of
three frauds was discovered by accident. On the global
scale, unofficial sources are the leading form of
discovering occupational fraud. Worldwide, however, in
contrast to Ukraine, the most common form of obtaining
information from unofficial sources is a hotline that is
clearly underestimated in Ukraine. According to the ACFE
Global Study, availability of a hotline doubles the
efficiency of detecting fraud schemes through unofficial
sources of information.
• Even though one-third of the study participants (35.6%)
claim to have high to moderate fraud risks in their
companies within the next year, over 40% of them
consider the risk of fraud to be low. Besides, 5% of
respondents generally reject the mere possibility of fraud
in their companies.
• The biggest concern from the viewpoint of their
potential development is the same types of fraud that are
most widespread today: ungrounded/unreasonable
expenses, embezzlement (as reported by 31% of the
study participants), sabotage and negligence (as
reported by 24% of the respondents), corruption and
bribery (20.9% of the study participants).
• In contrast to the global situation where the key factor
that makes companies vulnerable to fraud is considered
to be the lack of internal controls, the major factor
contributing to why certain employees will engage in
fraudulent activities in Ukrainian companies is reported to
be the employee’s dishonesty (as reported by 51.2% of
the study participants). As for the lack/imperfection of
internal controls, they are also listed as major factors
leading to fraud, but identified as significant by fewer
Ukrainian respondents (41.9% and 36.4%, respectively).
According to 31.8% of the participants, the mere
possibility of fraud can contribute to employees’
engagement in fraudulent activities. 25% of the survey
participants consider engagement in fraudulent activities
to be triggered by dissatisfaction of employees with their
financial situation.
SUMMARYOFSTUDYRESULTS

SUMMARYOFSTUDYRESULTS
COMPANIES’ EFFORTS TO COUNTERACT FRAUD
• The system of regular internal control aimed at
preventing company employees of various levels (top-
and mid-level management as well as low-level
employees) from engaging in fraudulent activities is
recognized as the most effective mechanism. In contrast
to Ukraine, global practice shows that the most effective
mechanism for preventing fraud is the external auditing of
ﬁnancial statements. According to the ACFE Global
Study, this instrument is systematically used by 82% of
the companies. It is important to note that regular
external audits correlate well with lower rates of the
fraud-related ﬁnancial losses and faster detection of
negative facts.
• Almost 40% of the companies participating in the study
conduct an internal fraud control at least once a quarter,
while less than one in three companies conduct this
procedure 1-3 times a year.
EXTERNAL CONSULTING AS A FRAUD PREVENTION MECHANISM
• Nowadays, hiring external consultants to conduct
investigations of the cases/possibilities of occupational
fraud still remains far from becoming a common measure
being practiced by no more than 17% of the study
participants. The main reason for hiring an external
auditor was listed as the belief that an external
investigation will be more objective.
Almost 1/3 of the study participants had trouble
answering the question why their company had never
used external investigations before, which can serve as a
potential evidence to the lack of information
on/understanding the value of this service.

TOPICALITY
OF THE PROBLEM
OF OCCUPATIONAL FRAUD
Around 40% of the companies in Ukraine have suffered from embezzlement,
as well as ungrounded/unreasonable expenses, which constitutes
the most common types of occupational fraud in Ukraine.
As of today, one in every three occupational fraud schemes
is discovered by accident.
70-80% of the fraud victims are trading companies,
industrial and food production enterprises.
43,4% of occupational abuse cases were detected through an internal audit, while
38,2% of them were revealed by unofficial internal sources.

TOPICALITYOFTHEPROBLEMOFOCCUPATIONALFRAUD
DETECTION OF THE FRAUD CASES BY COMPANIES
Over a half of the companies that took part in the study
report (61.5%) have been victims of some fraudulent
activities with almost one-third of the companies
detecting recent (within the last 3 years) cases of fraud.
At the same time, about 40% of respondents claim that
they have never encountered fraud issues in their
companies.
It is peculiar that in the industry profile, the fraud cases
were reported much more often by representatives of
industrial production, trade, food industry and agriculture.
Fraud detection rates reported by the industries above
tend to be significantly higher than those on the market in
general.
The detection of fraud cases depends on certain
parameters within a company:
• The number of employees. Larger companies tend to
detect fraud facts more frequently. For companies with
less than 100 employees, fraud cases are reported by
1/4 of the respondents, while for companies that have
more than 500 employees, such cases are reported by
40% of the study participants.
• The international/national/regional profile. The fraud
detection rate is higher in international companies rather
than in national and regional companies. For international
companies, a zero fraud rate is reported by less than 1/3
of the respondents (31.3%), while for regional
companies, a zero fraud rate is reported by 46.2% of the
study participants.
Detection rate of fraudulent activities, companies
by industry*, %
by number of employees, %
by profile, %
Detection rate of fraudulent activities by companies,
%:
*data on the industries widely represented in this survey
Questions: “Have you encountered fraudulent activities in your company?”, “What is your company profile?”, “How many employees does your
company have?”
Yes, within
the current year
Yes, within
the last 3 years
Yes, more than
3 years ago
No,
zero fraud experience
10,9%
31,8%
18,9%
38,5%
0% 20% 40% 60% 80% 100%
Industrial
production
Trade
Food industry
Agriculture
Transport and
logistics
Technologies
Experienced fraud issues
Experienced zero fraud issues
68,8%
61,5%
53,8%
31,3%
38,5%
46,2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
International National Regional
27,8%
31,6%
40,5%
48,9%
31,9%
19,1%
0%
10%
20%
30%
40%
50%
60%
Less than 100
employees
100-500
employees
More than 500
employees

MOST COMMON TYPES OF FRAUD
Embezzlement and ungrounded/unreasonable expenses
are the most common fraud types encountered by
companies in Ukraine.
A little over 25% of the companies have experienced
such fraud types as sabotage and negligence, corruption
and bribery (as reported by 28.0% and 26.9%,
respectively).
The third group of fraud types encountered by over 20%
of the companies are: information theft and
misappropriation of assets.
Fraud types encountered by companies in Ukraine, %:
0% 10% 20% 30% 40% 50%
Embezzlement
Ungrounded or unreasonable expenses
Sabotage and negligence
Corruption and bribery
Information theft
Misappropriation of assets
Illegal income or asset acquisition
Purchase of non-liquid assets and false write-offs
Forgery of contracts and false accounting
Financial statement fraud
Cybercrime
Understated liabilities and revenues
Overstated asset valuations
Improper recognition of proceeds
Other
Don’t know
Refuse to answer
41,9%
39,8%
28,0%
26,9%
22,6%
22,6%
18,3%
10,8%
9,7%
9,7%
7,5%
7,5%
5,4%
2,2%
4,3%
1,1%
9,7%
Question: “What speciﬁc types of fraud have you experienced?”

FRAUD-RELATED FINANCIAL LOSSES
Over a half of the companies that had experienced fraud
(60%) estimated their average financial losses from
various fraudulent activities at under $100,000 per year,
while the financial losses of almost 20% of companies
ran from $100,000 to $5 million.
It is peculiar that the correlation of financial losses above
stays virtually the same and does not vary depending on
the company profile or number of employees: the most
significant financial losses are normally cited in 20% of
cases, while smaller losses (under $100,000) are
encountered in about 80% of the cases.
Average financial losses from various fraud
schemes per year, %
It is also indicative that the annual financial losses from
various fraudulent schemes are higher in such industries
as transport, logistics and technology. The losses from
$100 thousand to $5 million were detected there more
often than in other industries.
Average financial loss from fraud schemes per year,
companies by industry, %
60,0%
18,5%
21,5%
0%
10%
20%
30%
40%
50%
60%
70%
under $100,000 from $100,000
to $5 million
Don’t know
Question: “What was the company’s annual average financial loss
that resulted from the fraud schemes reported?”
0% 10% 20% 30% 40% 50% 60%
Transport
and logistics
Technologies
Agriculture
Food industry
Industrial
production
Trade
from $100,000 to $5 millionunder $100,000 Don’t know

DEPARTMENTS WITH THE CASES OF FRAUD DETECTED
The departments to detect the cases of fraud more often
are: sales, purchases and operations departments –
these, as cited by respondents, account for over
one-third of all cases of fraud. It is peculiar that fraud
schemes in sales departments are reported to cause
losses equally both under $100,000 and from $100,000
to $5 million. Losses under $100,000 were more
frequently caused by fraudsters working in the operations
and purchase departments, while the cases of fraud
originated among members of executive management
are in the accounting and customer service departments,
and caused greater ﬁnancial losses: from $100,000 to $5
million.
Departments with the cases of fraud detected, %
Losses suffered by victim departments, %
Questions: “In which departments of the company did you encounter the reported cases of fraud?”, “What was the company’s annual average
ﬁnancial loss caused by these fraud schemes?”
0% 10% 20% 30% 40% 50%
Sales department
Procurement department
Operations department
Top/ executive management
Customer service department
Accounting
Financial department
IT- department
Marketing department
Other
41,8%
35,8%
34,3%
19,4%
9,0%
9,0%
6,0%
3,0%
3,0%
13,4%
41,0%
35,9%
38,5%
12,8%
5,1%
5,1%
5,1%
5,1%
5,1%
41,7%
16,7%
8,3%
41,7%
25,0%
33,3%
8,3%
0,0%
0,0%
0% 10% 20% 30% 40% 50%
Sales department
Procurement department
Operations department
Top/ executive management
Customer service department
Accounting
Financial department
IT-department
Marketing department
Under $100,000 $100,000 to $5 million

PROCEDURES FOR DETECTION OF FRAUD SCHEMES
As of today, internal auditing and unofficial internal
sources are the most common methods of detecting
fraudulent activities in companies.
Less common detection methods comprise detecting
suspicious activities and engaging the corporate security
service.
It is important to note that almost one of every three
fraud schemes was detected by accident.
Fraud detection methods virtually do not depend on the
company profile (the number of its employees,
international/national/regional status, etc.)
The diagram below demonstrates differences in fraud
detection methods utilized by organizations of various
industries. It is important to note that in industrial
production and trade profiles, where the companies fall
victim to fraud more often than in other fields, most of the
fraud schemes are detected by accident.
At the same time, in agriculture, transport, logistics, and
technologies, corporate fraud is commonly detected
through unofficial internal sources.
Internal audit
Unofficial internal sources
Accidental discovery
Identifying suspicious activities
Engaging corporate security service
Unofficial external sources
Through job rotation
Hotline
External investigation
Engaging law-enforcement agencies
*based on the industries most frequently cited within the framework of this survey
Comments to the chart. Boxes are shaded light to dark orange based on the respective frequency of usage of certain fraud detection methods. The lightest shade
means the method was not used to detect fraud.
Fraud detection methods, %
Fraud detection methods by industry, %
0% 20% 40% 60%
Internal audit
Unofficial internal sources
Accidental discovery
Detection of suspicious activities
Engaging corporate security service
Unofficial external sources
Through job rotation
Hotline
External investigation
Engaging law-enforcement agencies
Don’t know
43,4%
38,2%
32,9%
31,6%
30,3%
23,7%
18,4%
6,6%
2,6%
1,3%
2,6%
Trade Agriculture Food industry
Industrial
production
Transport
and logistics Technologies
Questions: “In your opinion, how high are the fraud risks your company may face in the next 12 months?”, “Have you experienced cases of fraud
in your company?”, “What helped uncovering fraud schemes in your company?”

FRAUD RISK EVALUATION
While more than one-third of the study participants
(35.6%) estimate their company’s fraud risks for the
coming year as high to moderate, over 40% of those
surveyed consider fraud risks to be low. Besides, 5% of
respondents totally reject the mere possibility of fraud in
their companies.
Not surprisingly, fraud risks for the near future are
estimated by the company representatives based on
their current experience:
• Those respondents who report no prior exposure to
fraud estimate the fraud risks for their companies as low
or non-existent.
• On the other hand, more than a half of those
respondents whose companies have suffered from fraud
evaluate the risks of the fraudulent activities reoccurring
as being high to moderate.
Fraud risk evaluation for the next 12 months, %
Fraud risk evaluation for the next 12 months, %:
Questions: “In your opinion, how high are the fraud risks your company may face in the next 12 months?”, “Have you experienced the cases of
fraud in your company?”
2,3%
33,3%
41,9%
5,4%
9,3%
High risks Moderate risks Low risks No risks Don’t know
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
35,0%
40,0%
45,0%
0% 20% 40% 60% 80% 100%
High to moderate risks
Low risks
No risks
Don’t know
54,8%
37,0%
1,4%
6,8%
13,0%
58,7%
13,0%
15,2%
Companies with prior exposure to fraud Companies with no prior exposure to fraud

FRAUD RISK PREDICTIONS FOR SPECIFIC FRAUD TYPES
The biggest concerns over their potential recurrence are
expressed for the same fraud types that are currently
most common: ungrounded/unreasonable expenses,
embezzlement, sabotage and negligence, corruption and
bribery.
It is important to note that concerns over cybercrime are
quite low (cited by only 8.5% of respondents).
This, however, may be due to the fact that the current
study had been conducted before the massive spread of
Petya ransomware in Ukraine.
Question: “What speciﬁc types of fraud do you consider most likely to occur in your company?”
Fraud risk predictions for speciﬁc fraud types, %:
31,0%
31,0%
24,0%
20,9%
19,4%
16,3%
14,0%
10,1%
8,5%
6,2%
4,7%
3,1%
3,1%
3,1%
17,1%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Embezzlement
Information theft
Purchase of non-liquid assets
and false write-offs
Cybercrime
Concealed liabilities and proceeds
Don’t know

11,1%
Not surprisingly, concerns over various fraud types
depend on the prior exposure of respondents to them:
• Respondents from the companies with prior exposure
to fraud express concerns over the same fraud types that
they encountered in the past: embezzlement,
ungrounded/unreasonable expenses, sabotage and
negligence, corruption and bribery.
• Respondents from the companies with no prior
exposure to fraud also evaluate
ungrounded/unreasonable expenses and embezzlement
as most likely to occur potentially. More than ¼ (27.5%)
of respondents, however, opt for the ‘Don’t know’
answer when asked about the fraud types their company
may anticipate.
Concerns over speciﬁc fraud types depending on the respondents’ prior exposure to them, %
Questions: “What speciﬁc fraud types do you consider most likely for your company?”, “Have you ever experienced fraud in your company?”
43,1%
33,3%
30,6%
26,4%
19,4%
19,4%
15,3%
9,7%
5,6%
5,6%
4,2%
4,2%
15,3%
22,5%
30,0%
17,5%
12,5%
15,0%
17,5%
10,0%
5,0%
0,0%
10,0%
0,0%
5,0%
2,5%
2,5%
27,5%
40% 20% 0% 20% 40% 60%
Embezzlement
Information theft
Cybercrime
Don’t know
Prior exposure to fraud
No prior exposure to fraud
38,9%

Fraud risk assessment also has an impact on what fraud
types are considered as potentially most likely to occur in
the future:
• Company representatives who evaluate fraud risk as
high to moderate tend to cite asset misappropriation as
the fraud type that their company is most likely to
encounter. The second most likely fraud types are
represented by sabotage, negligence, corruption, and
bribery. Almost one-third of study participants in this
group are concerned about the risk of
ungrounded/unreasonable expenses and
Misappropriation of assets.
• Company representatives who evaluate fraud risks for
the subsequent 12 months as low are mostly concerned
about ungrounded/unreasonable expenses.
Questions: “What speciﬁc fraud types do you consider most likely to occur in your company?”, “How high are the fraud risks that your company
may face in the next 12 months?”
Concerns about speciﬁc fraud types depending on the respondents’ assessment of future fraud risks, %
51,2%
41,9%
41,9%
30,2%
30,2%
20,9%
20,9%
18,6%
14,0%
11,6%
7,0%
4,7%
4,7%
4,7%
2,3%
9,3%
21,8%
18,2%
14,5%
36,4%
18,2%
14,5%
5,5%
18,2%
3,6%
10,9%
1,8%
3,6%
7,3%
3,6%
0,0%
21,8%
60% 40% 20% 0% 20% 40% 60%
Embezzlement
Information theft
Cybercrime
Improper recognition of revenues
Don’t know
High to moderate risks
Low risks

FRAUD OCCURRENCE FACTORS
According to over half of the study participants (51.2%),
employee’s dishonesty is the key factor contributing to
corporate fraud.
Among other major fraud occurrence factors cited by the
study participants are the lack or inefficiency of internal
control and the possibility of fraud itself.
A quarter of the study participants consider the
engagement in fraudulent activities to be triggered by
dissatisfaction of employees with their financial situation.
Representatives of the companies with prior exposure to
fraud tend to report a broader range of fraud occurrence
factors, compared to those with no prior experience with
fraudulent activities. Participants of the study in both
categories view employee’s dishonesty and lack and/or
inefficiency of internal control as key factors contributing
to fraud.
It is important to note that the companies with prior
exposure to fraud consider the mere possibility of fraud
to be treated more seriously, compared to those
companies that have no prior experience with fraudulent
activities.
Awareness of the fraud occurrence factors depending on the respondents’ prior exposure to fraud, %
Fraud occurrence factors, %
Questions: “What specific factors, in your opinion, contribute to occupational fraud?”, “Have you ever experienced fraud in your company?”
51,2%
41,9%
36,4%
31,8%
25,6%
20,2%
16,3%
12,4%
10,1%
10,1%
9,3%
5,4%
7,8%
3,1%
0% 10% 20% 30% 40% 50% 60%
Employee’s dishonesty
Inefficiency of internal control
No internal control system
Possibility of fraud
Dissatisfaction of employees with their financial situation
Dissatisfaction of employees with their salaries
Overall poor awareness of the Code
No Code of Business Ethics in place
Low level of the owner’s engagement in operations management
No annual audit
No fraud reporting system
No fraud counteraction regulations
Don’t know
Other
57,5%
48,8%
40,0%
37,5%
27,5%
17,5%
17,5%
12,5%
8,8%
7,5%
7,5%
2,5%
2,5%
2,5%
40,0%
30,0%
30,0%
22,0%
22,0%
14,0%
24,0%
12,0%
10,0%
14,0%
14,0%
10,0%
16,0%
4,0%
No annual audit
Don’t know
Other
Prior exposure to fraud
No prior exposure to fraud
0% 20%20% 40%40% 60%60% 80%

Even though the awareness of the fraud occurrence
factors (employee’s dishonesty and inefficiency of
internal control or/ and its unavailability) does not depend
on the company’s international/national/regional status,
there are certain peculiarities in the awareness of other
factors at regional companies compared to those of
national and international status, namely:
• Less priority is given to the mere possibility of fraud.
• Greater priority is given to a number of organizational
factors (no fraud prevention regulations, low level of the
owner’s engagement in operations management), as well
as poor employee awareness of the Code of Business
Ethics and dissatisfaction of employees with their
salaries.
Questions: “What specific factors do you think contribute to occupational fraud?”, “What is your company profile?”
Awareness of the fraud occurrence factors depending on the company profile, %
International
No annual audit
Don’t know
Other
No annual audit
Don’t know
Other
No annual audit
Don’t know
Other
National
Regional
50,0%
43,8%
39,6%
37,5%
27,1%
18,8%
16,7%
14,6%
6,3%
6,3%
4,2%
4,2%
6,3%
0,0%
0,0% 20,0% 40,0% 60,0%
55,6%
40,7%
37,0%
18,5%
22,2%
25,9%
25,9%
11,1%
11,1%
18,5%
3,7%
18,5%
3,7%
3,7%
50,9%
41,5%
34,0%
34,0%
26,4%
18,9%
11,3%
11,3%
11,3%
9,4%
7,5%
11,3%
11,3%
3,8%

COMPANIES’ EFFORTS
TO COUNTERACT
FRAUD
40,5% of the companies that detect fraud undergo an annual external audit in order
to prevent recurrence.
22,8% of the companies that detect corrupt practices, owners are engaged
in the operations management.
Almost 40% of the companies conduct an internal audit at least once a quarter.
National companies tend towards more frequent control measures than those
with international status.

COMPANIES’EFFORTSTOCOUNTERACTFRAUD
FRAUD COUNTERACTION MECHANISMS
The system of regular internal control aimed at preventing
the company employees of different status (from top-
and mid-level management to low-level employees) from
engaging in fraudulent activities is viewed as the most
effective mechanism. In reality, however, the top- and
mid-level management are supervised more comparing
to the low-level employees.
There are other discrepancies between the anticipated
efficiency of certain fraud prevention mechanisms and
their true value, namely:
• More frequent use of annual ﬁnancial statement audits
and owner’s engagement in the operations management
as a fraud counteraction mechanism, as compared to
their anticipated efficiency.
• Less frequent use of independent investigations
conducted by external consultants, as compared to a
higher anticipated efficiency of this fraud counteraction
mechanism.
Most effective and frequent fraud counteraction mechanisms, %
Questions: “What fraud counteraction mechanisms do you consider most effective?”, “Which of these mechanisms are used in your company?”
60% 40% 20% 0% 20% 40% 60% 80%
The system of regular internal control aimed at preventing and detecting
fraudulent activities among top- and mid-level management
The system of regular internal control aimed at preventing and
detecting fraudulent activities among junior staff
Annual ﬁnancial statement audit
Occasional involvement of independent investigations
carried out by external consultants
Existence of the corporate Code of Business Ethics that establishes
penalties for those engaged in occupational wrongdoing and fraud
Active owner’s engagement in the
operations management of the company
Existence of a hotline and an online form to report
potentially fraudulent activities
Availability of fraud counteraction regulations compliant
with anti-corruption laws
Don’t know
55,1%
42,2%
23,8%
18,4%
15,0%
11,6%
10,2%
7,5%
6,8%
42,9%
28,6%
34,0%
10,9%
13,6%
21,8%
8,8%
6,1%
6,1%
Most effective fraud counteraction mechanisms
Commonly used fraud counteraction mechanisms

It is peculiar that the system of regular control aimed at
preventing and detecting fraudulent activities among top-
and mid-level management, as well as annual audits of
ﬁnancial statements are the mechanisms most commonly
used by both the companies with prior exposure to fraud
and those who have not been exposed to it.
However, companies with prior experience make more
active use of internal control mechanisms over low-level
employees, hotlines and online forms for reporting
potentially fraudulent activities. Companies with no prior
experience tend, on the other hand, to counteract fraud
by engaging the owner in operations management.
Commonly used fraud-counteraction mechanisms depending on prior exposure to fraud, %
Questions: “Which of these mechanisms are used in your company?”, “Have you ever encountered fraud in your company?”
51,9%
40,5%
35,4%
22,8%
16,5%
13,9%
12,7%
7,6%
7,6%
46,8%
38,3%
29,8%
29,8%
14,9%
10,6%
6,4%
6,4%
6,4%
60% 40% 20% 0% 20% 40% 60%
The system of regular internal control aimed at preventing and detecting
fraudulent activities among top- and mid-level management
The system of regular internal control aimed at preventing and
detecting fraudulent activities among junior staff
Audit of annual ﬁnancial statements
Occasional involvement of independent investigations
carried out by external consultants
Existence of the corporate Code of Business Ethics that establishes
penalties for those engaged in occupational wrongdoing and fraud
Active owner’s engagement in the
company’s operations management
Availability of a hotline and an online form to report
potentially fraudulent activities
Availability of fraud counteraction regulations compliant
with anti-corruption laws
Don’t know
Most effective fraud counteraction mechanisms
Commonly used fraud counteraction mechanisms

FRAUD PREVENTION THROUGH INTERNAL CONTROL
Almost 40% of companies that participated in the study
conduct internal control at least once a quarter, while
less than a third of the companies carry it out only 1-3
times a year.
The lower frequency of implementation of internal fraud
counteraction mechanisms (1-3 times a year) is cited by
international companies, while those with national status
tend towards more frequent control procedures: almost
half of the latter perform internal control at least once a
quarter.
As for the regional companies, they display an equal
practice of both ‘once a quarter’ and ‘1-3 times a year’
internal controls. At the same time, over a quarter of the
study participants representing regional companies
(27.3%) chose to answer ‘Don’t know’ when evaluating
the frequency of internal control procedures in their
companies.
Frequency of fraud counteraction mechanisms, %
Frequency of internal controls depending on the
company proﬁle, %
International
At least once a quarter
1-3 times a year
Less than once a year
No internal controls
Don’t know
31,7%
41,5%
12,2%
2,4%
12,2%
0% 10% 20% 30% 40% 50%
1-3 times a year
Don’t know
National
0% 10% 20% 30% 40% 50%
1-3 times a year
Don’t know
Regional
0% 10% 20% 30% 40% 50%
1-3 times a year
Don’t know
47,6%
26,2%
9,5%
7,1%
9,5%
31,8%
27,3%
4,5%
9,1%
27,3%
Questions: “How often do you perform internal controls in order to prevent potential fraud schemes?”, “What is your company proﬁle?”
37%
32,4%
13,9%
6,5%
10,2%

EXTERNAL CONSULTING
AS A FRAUD PREVENTION
MECHANISM
17,1% of the companies have hired external consultants to conduct ﬁnancial
investigations.
Major causes for seeking external assistance:
- groundless revenue slippage
- anonymous reports
Almost 1/3 of the study participants chose to answer ‘Don’t know’ when asked about
why their companies had not made use of the independent investigations carried
out by external consultants.
This potentially can be due to a lack of information on/understanding of the value of the
service.

EXTERNALCONSULTINGASAFRAUDPREVENTIONMECHANISM
A significant section of the survey’s participants (40%)
see external consulting as useless in preventing fraud. On
the other hand, more than ¼ of respondents view it as an
effective fraud counteraction procedure.
Almost 1/3 of the study participants had trouble
answering the question as to why their company had
never used external investigations before, which can
serve as potential evidence to the lack of information
on/understanding the value of this service.
*Why the companies have never used external
investigations, %
Questions: “Has your company ever hired external consultants in
order to investigate facts/possibilities of fraud in your company?”,
“Why have you never used external financial investigation services?”
*Major reasons for seeking external assistance
• groundless revenue slippage
• anonymous reports
• intuitive suspicions that something is wrong
Key reason for hiring an external consultant
• reliance on the more pronounced objectivity of an
external investigation
Types of financial investigations
(by the frequency of their use)
• efficient use of assets
• proper spending of funds
• proper tendering and centralized
procurement practices
• “business prospecting”
Search of an external consultant
• contacting a company that generally provide
accounting and consulting services
• following the recommendations of colleagues
and partners
As of today, bringing in external consultants to investigate
the cases of (suspected) fraud in a company has not
become a common practice yet, with no more than 17%
of the study participants to use this method in their
companies.
The major reason for seeking external assistance is
reliance on the more pronounced objectivity and
independence of an external investigation.
Hiring external consultants in order to conduct
investigations, %
No*
Yes*
Don’t know
12,4%
17,1%
70,5%
0% 10% 20% 30% 40% 50%
Don’t consider it necessary
Confident that the internal
control is efficient
Don’t know of such possibility
Know there is a possibility, but don’t
know any specific companies
Do not trust your investigations
Don’t know
40,8%
28,2%
2,8%
4,2%
11,3%
31,0%

ABOUTKRESTONGCG:WHOWEARE
WHO WE ARE
Kreston GCG is a Ukrainian division of the global network Kreston International, which is one
of the largest accounting and consulting organizations in the world. It takes pride in its team
of more than 20,000 of dedicated professionals located in 108 countries.
We are proud that our audit methods
stand out as exceptionally impeccable.
No matter is left unattended.
Audit of financial statements
Concurrent auditing services
Transition to IFRS
Forensic – financial investigations
Raising the efficiency of financial management
Audit of systems and processes
Preparation of the Annual Report
OUR EXPERTISE:
AUDITING SERVICES
Kreston GCG offers the broadest range
of evaluation services in Ukraine.
We specialize in evaluation of large
and complex assets.
Evaluation for audit and reporting in
compliance with IFRS
Evaluation for capital transactions: M&A,
restructuring, interest sales
Evaluation for international financial
institutions: EBRD, IFC, IBRD
Evaluation for foreign users: regulators,
banks, investors
EVALUATION SERVICES
We know how to attract capital
and to examine an investment object.
Our favorite range is $5-50 million.
Evaluation and business modeling
Financial and tax Due Diligence
Restructuring
Transaction support
TRANSACTION SUPPORT SERVICES
We detect additional tax risks, analyze
compliance of the company’s operations
with the tax legislation.
Transfer price formation
Tax audit
Tax planning and structuring
Tax dispute resolution
TAXATION SERVICES
Business transformation in action.
We always put our consulting
into service
Developing strategies and business plans
Marketing studies and consulting
Increasing efficiency of marketing and sales
Recruiting financial experts
Improving the efficiency of HR department
CONSULTING SERVICES
Kreston GCG offers a complete range
of legal support services for M&A
transactions, as well as legal assistance
with any other cross-border projects.
Corporate and commercial law
Full legal support of M&A transactions
International trade
Private capital management
Dispute resolution
International taxation and tax structuring
LEGAL SERVICES

CUSTOMERS’ PROBLEMS
In the context of the economic crisis and the deteriorating ﬁnancial indicators in Ukraine, business owners are
increasingly showing more interest in the effective operation of their company.
FRAUDULENT ACTIVITIES AND NEGLIGENCE DISPLAYED BY EMPLOYEES ARE AMONG THE CAUSES OF UNDER-RECEIVED REVENUE
WHAT ARE THE ACTUAL LOSSES AND POTENTIAL DAMAGE CAUSED BY FRAUD?
HOW DO LOSSES OCCUR?
5 %
of revenues
(globally, according to a survey by ACFE)
5-15 %
of revenues
(in Ukraine, according to estimates by Kreston GCG)
01 Bribery and
Corruption
• Illegal gratuities
• Economic extortion
• Invoice kickbacks
• Bribery
• Bid rigging
Information theft
02 Embezzlement and
misappropriation
of assets
• Theft of cash receipts and cash on hand
• Misappropriation of assets
• Unconcealed embezzlement
• Fictitious operations and ungrounded overstatement of prices
• Ungrounded/unreasonable expenses
• Purchase of non-liquid assets
• False write-offs
Sabotage
03 Financial
Statement Fraud
• Improper recognition of revenues
• Concealed liabilities and proceeds
• Overstated assets
• Distorted disclosures in accounting statements
• Manipulations with the timing differences of operations
• Understated liabilities and revenues
• Forgery of contracts and accounting source documents
Negligence
• Embezzlement of property and overstated expenses
• Operations with high-risk counteragents
ABOUTKRESTONGCG:CUSTOMERS’PROBLEMS

OUR SOLUTIONS
The services provided by Kreston GCG Forensic cover the entire range of potential risks to your business
caused by various types of fraud, corrupt practices, occupational negligence and other harmful actions
performed by employees, both within your business and in your relations with counteragents.
Conducting retrospective examinations of the company operation. Evaluation of damages and lost revenues,
identification of the perpetrators and collection of evidence.
Developing a system for countering fraud. Monitoring its performance, implementing policies and procedures of
internal control.
The negative consequences of corrupt practices can be mitigated by means of pre-trial proceedings, by tracking the
stolen assets in Ukraine and abroad, and recovering them through the courts.
Even the selective punishment of the perpetrators is a necessary prerequisite for countering fraud in future.
OUR SOLUTIONS ARE SEGMENTED INTO GROUPS:
ABOUTKRESTONGCG:OURSOLUTIONS
FINANCIAL
INVESTIGATIONS
DEVELOPMENT
OF THE FRAUD
COUNTERACTION SYSTEMS
TRACKING AND RECOVERING STOLEN
ASSETS, PROVIDING SUPPORT
IN DISPUTES AND LITIGATIONS
Detecting and evaluating damages, revenues
not received and lost possibilities.
Collecting disclosed information on the parties
to a dispute.
Providing evaluation for a dispute and
determining a strategy for it.
Duly collection of evidence for the
law-enforcement agencies and courts.
Conducting a forensic accounting examination.
Providing support in negotiations.
Conducting pre-trial asset recovery.
Tracking assets located across multiple
jurisdictions.
Providing forensic support in Ukraine and abroad.
Providing expert testimony.
Developing an action plan to counter fraud.
Setting up a corporate hotline.
Building and setting up an online application
form for reporting fraud.
Organizing the operation of economic
security and internal control service.
Analyzing the company’s financial security
systems. Evaluating the procedures
and internal policies.
Examining operational efficiency and evaluating
financial losses on three major areas: production,
procurement, sales.
Investigating fraud within the Group.
Detecting facts of embezzlement,
misappropriation of assets, overstated expenses,
understated revenues, corruption,
conflicts of interest.

OUR TEAM
Our Forensic team incorporates over 30 dedicated professionals from Ukraine.
Our cohesive network covers more than 200 countries in North America and Western Europe.
We have developed expertise procedures for investigating the fraudulent activities of employees,
evaluating efficiency of the company performance, corporate intelligence, providing support in
disputes, criminal and trial litigations. We know how to create a fraud prevention system.
We are proud that our audit and forensic methods stand out as exceptionally impeccable. No
matter is left unattended.
Artem Kovbel
Partner,
Head of the Forensic Department
+380 (66) 241 40 66
+380 (44) 351 11 78
kovbel@kreston-gcg.com
Sviatoslav Yefremov
Partner,
Consulting services
+380 (67) 621 34 86
+380 (44) 351 11 78
jossy@kreston-gcg.com

A member of Kreston International | A global network of independent accounting ﬁrms
+380 (44) 351 11 78
+380 (44) 351 11 79
www.kreston-gcg.com
kiev@kreston-gcg.com

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