Rise in Global Fraud Triggers Serious Liability Concerns Among Boards

The Ernst & Young 11th Global Fraud Survey reveals that 76% of respondents feel their boards are increasingly concerned about their personal liablity from fraud, bribery and corruption. Furthermore, executives interviewed believe that their boards are not sufficiently prepared to deal with new risks from fraud and corruption as companies return to growth.

 

The responses of over 1,400 CFOs and heads of internal audit, legal and compliance in major companies in 36 countries across the world also show that fraud appears to be increasing significantly in some regions. For example, in Western Europe, the number of companies that had experienced a significant instance of fraud in the past two years increased from 10% to 21%.

 

However, despite the boards' concern, they do not appear to be behaving in a way that would increase their own protection, points out Ernst & Young. Only 4 out of 10 CFOs interviewed had been asked to perform a review of anti-fraud and corruption controls in the previous 12 months, and only 28% had been asked to produce a fraud risk assessment.

 

Having coped through the global economic downturn, many companies are now looking for new growth opportunities, which may come through entering new markets or making acquisitions. These efforts can expose companies to numerous new risks, potentially including corruption issues, says Ernst & Young, adding that to minimise such risks, businesses have to undertake thorough, focused pre-acquisition due diligence. The figures rose as high as 54% in Australia and 53% in Japan.

 

A renewed merger and acquisition strategy also raised more specific concerns among respondents. Forty-eight percent of chief legal officers interviewed are worried by competition risks arising from a push for growth, while 54% of chief compliance officers reported that data security will be a significant issue in the next 18 months.

 

However, 30% of respondents stated that they rarely or never undertook such procudures. The figures for post-qualification due diligence raise even greater concerns, with 42% of respondents admitting that they rarely or never undertook such procedures.

 

Responding to individual incidents or regulatory enquiries often requires extensive review of electronically stored information, including emails. Half of the legal respondents reported that the significance of emails to investigations has incrased in the last two years. However, 35% say that they are planning to cut back spending on email reviews, which implies a major focus on driving efficiencies.

 

 

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