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PricewaterhouseCoopers Study Finds Majority of U.S. Organizations Still Suffer From Economic Crime

(Oct 16, 2007)-- Economic crime remains a persistent and intractable problem from which U.S. companies are not immune, according to PricewaterhouseCoopers' 2007 Global Economic Crime Survey. Fifty-three percent of U.S. companies surveyed reported that they were affected by some form of economic crime in the past two years with total losses of $223 million.

The biennial survey of 5,400 global companies, the most comprehensive study of its kind, conducted in association with Germany's Martin-Luther University, Halle-Wittenberg, found that economic crime is all but universal, affecting companies of all sizes, on all continents and in all industries. While fraud remains problematic -- fraud levels have not dropped in the eight years since PwC initiated this survey -- most companies are confident that their control measures will limit their exposure to fraud in the future. Only 12 percent of U.S. firms consider it likely they will be victims of fraud during the next two years.

While controls are shown to be a substantial component of an efficient crime prevention program, many U.S. companies are adopting a proactive approach to combating economic crime that includes a focus on establishing a strong corporate culture of transparency. Approximately one third (33 percent) of the crime reported arose out of a whistleblower report or other internal 'tip-off.'

"The 'tone at the top' and communication of the code of conduct as an absolutely essential adjunct to an organization's control structure," said Steven Skalak, Global Investigations and Forensics Leader, PricewaterhouseCoopers. "A culture that supports a holistic compliance program together with a clearly understood, and lived, code of ethics, creates the true foundation for an effective anti-fraud program."

Sarbanes-Oxley was also stated as an effective method of deterring crime. Seventy-one percent of U.S. respondents believed that Sarbanes-Oxley is at least marginally effective in detecting economic crime while 61 percent believed it is at least marginally effective for detecting economic crime originating outside of the company.

"Additional steps need to be taken to strengthen the controls following the enforcement of Sarbanes-Oxley," continued Skalak. "While it is impossible to completely eliminate economic crime, we can nevertheless strive to deepen our understanding of such crime, how it can be prevented, and share our knowledge of 'what works and what doesn't.'"

Significant changes within an organization, such as mergers, acquisitions, and global expansion initiatives are likely to increase the risk of economic crime. As many U.S. companies view China as a critical market to be in, the study took a closer look at the increased risks of economic crime associated with China and other emerging markets overseas. Bribery, corruption and intellectual property (IP) infringement were the biggest challenges facing U.S. companies when expanding into other markets. Forty-one percent of respondents operating in China believe they will be the victim of IP infringement during the next two years (with an average cost estimated at $6.5 million -- higher than any other type of economic crime).

"U.S. companies need to fully understand the business culture of the foreign countries in which they operate," added Skalak. "They must consider whether appropriate measures are in place to prevent and detect bribery and corruption and whether they can protect their IP assets."

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