Run but you can't hide- Canadian businesses face lower instances of economic crime, but fraudsters keep up

TORONTO, Feb. 24, 2014 /CNW/ - While economic crime against organizations has risen globally with 37% of organizations surveyed experiencing it, a three per cent rise since 2011, Canada has reported lower instances of economic crime than its international counterparts in the last two surveys, according to the 2014 PwC Global Economic Crime Survey (GECS) - Canadian supplement.

The Canadian supplement of the GECS report indicated this trend may be due to Canadian organizations being more diligent in establishing robust anti-fraud regimes - including fraud risk assessments and whistleblowing systems.

Steven Henderson, National Forensic Services Leader, PwC, says, "While Canada sits below the global average, the threats from economic crime continue to evolve. Like a virus, savvy fraudsters adapt to the trends that affect all organizations and economic crime will continue to be a major concern for organizations of all sizes, across all regions and in virtually every sector."

According to the Canadian GECS report, the most common type of fraud encountered by Canadian organizations was asset misappropriation - theft - (58%), followed by procurement fraud (33%), cybercrime (22%) and accounting fraud (22%).

Fiscal damage vs collateral costs
Of the Canadian respondents who had experienced economic crime in the survey, more than one in 10 reported losses of more than US$5 million. Worldwide, the number of organizations that experienced losses greater than US$100 million doubled from one to two per cent of respondents in the 2014 global survey - compared to when the survey was taken last in 2011.

"Beyond the numbers, the true cost of a fraud incident lies with employee morale and corporate reputation," says Henderson. Forty -seven per cent of Canadian respondents noted employee morale as being greatly impacted as a result of an economic crime.

Getting on the anti-bribery & corruption bandwagon
Thirty -eight per cent of Canadian respondents noted that their organization pursued an opportunity in a market with a high level of corruption risk. Of those respondents, 47% altered their business plan due to the corruption risk, while 40% did not. The remaining 13% didn't know if they had or not.

When it comes to bribery payments, 15% of Canadian companies indicated that they have been asked to do so, while 14% believe they have lost an opportunity to a competitor who paid a bribe.

Henderson states, "These findings are concerning given the fact that bribery and corruption may pose the greatest threat to global establishments because of the range of business processes it threatens."

"Both domestic and foreign bribery and corruption has become a major concern in Canada over the past few years," adds Henderson. "Companies face not only investigative costs, penalties and fines, but could face long-term reputational damage impacting the value of the company. It is critical for Canadian companies to ensure they assess their current bribery and corruption risk, and implement a robust anti-bribery and corruption compliance program to address these risks."

Continuing focus on cybercrime
Cybercrime is listed as one of the top five economic crimes in Canada and globally. The 2014 GECS reported that approximately one in four respondents have experienced a cybercrime. Henderson notes, "We have to also consider that a significant percentage of those who did not report cybercrime may have suffered an event - and not even know about it.  The bottom line is that much of the damage created by these attacks is not disclosed."

According to the GECS, technology advancement along with social media growth and dependence on connectivity has increased the spread of cybercrime, but it's not strictly a technology problem. Henderson says, "Businesses aren't being attacked by computers, but by people attempting to exploit human frailty as much as technical vulnerability. It is a strategy problem, a human problem and a process problem."

Profiling a fraudster
Typically economic crime is committed when three conditions are present: life pressure, opportunity and personal rationalization for the crime.

According to Canadian survey respondents, more than half (61%) of fraud perpetrators were internal and 39% were external. The survey found that the profile of a typical fraudster is middle-aged with a college education or higher who has been with the organization for a substantial amount of time.

Catch them if you can
Canadian survey results found that 62% of economic crime is discovered through corporate control measures such as reporting of suspicious transactions, internal audit or fraud risk management. Less than 18% of economic crimes are uncovered by whistleblowing systems or tip offs.

Henderson concludes, "When management take an active interest in fraud within their organization and take disciplinary action towards fraud perpetrators, the right 'tone at the top' is established. An organization's ethical 'tone at the top' combined with a robust internal control environment will result in a strong deterrent to fraudulent behavior and increase the chances of detecting such activities."

For more information, including a full copy of the 2014 Global Economic Crime Survey and the Canadian findings, please visit www.pwc.com/ca/crimesurvey.

Follow PwC on Twitter at @PwC_Canada_LLP and on Facebook at www.facebook.com/pwccanada.

About PwC Canada
PwC Canada helps organizations and individuals create the value they're looking for. Our 5,700 partners and staff in offices across the country are committed to delivering quality in assurance, tax, consulting and deals services. PwC Canada is a member of the PwC network of firms with more than 184,000 people in 157 countries. Find out more by visiting us at www.pwc.com/ca.

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SOURCE: PwC Management Services LP

Abby Yung
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Emily Abrahams
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