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Accounting fraud on the rise: PwC

25th February 2014

MGI World Accounting fraud on the rise: PwC

International expansion is bringing an increased threat of fraud to US firms, according to a major new report. Accounting fraud, bribery and corruption are all on the rise, says PwC  in the Global Economic Crime Survey 2014, which also revealed a significant uptick in cybercrime.

While the report says 37 per cent of firms globally have suffered some type of fraud in the last two years, the figure for US companies rises to 45 per cent. This may be down to American firms’ increasingly global presence and efforts to tap into new markets.

"Economic crime has become a truly borderless threat," said Steven Skalak, partner in PwC's Forensic Services practice and the lead editor of the global survey.  "The reality of fraud is that it can impact a company's revenues as directly as other business and market forces."

A willingness to expand abroad is clearly advantageous, but threats multiply as international exposure increases. “The risk of bribery and corruption grows as US organisations increasingly operate in and pursue opportunities in high-risk markets,” added Mr Skalak.

Both accounting fraud and bribery & corruption increased in 2014. Accounting fraud in particular saw a big leap to account for 23 per cent of frauds report in 2014 from just 16 per cent in 2011. Bribery and corruption doubled to 14 per cent. In addition, more than a quarter of the US firms surveyed reported some kind of procurement fraud.

Increasingly, US companies must beware the “external perpetrator” of fraud, though the authors urge businesses not to neglect internal fraud problems. Each account for roughly half of frauds reported by American firms.

Businesses should carefully watch middle managers, who are responsible for 54 per cent of internal fraud, up from 45 per cent in 2011.

There were some bright spots. For example, the report showed that fraud initially detected by suspicious transaction reporting dropped by a fifth to 11 per cent in 2014. Moreover, 86 per cent organisations have a mechanism for whistleblowers to report misdeeds, versus 62 per cent of companies globally.

As PwC principal Didier Lavion explains, bosses, managers, accountants, auditors, and employees at all levels must be on the look out for the increasingly diverse threats.

 "With more opportunities come more risks; no longer can organizations focus their fraud prevention and detection strategies on only a few types of fraud, a certain profile of fraudster, or certain perceived threats,” he said. “They must be prepared to cast a wider net, for the threats associated with fraud are growing.”

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