Tuesday, August 22, 2006

Ernst & Young Fraud Survey in Emerging Markets Recommends Stronger Internal Controls

There is no doubt that the global economy has created new opportunities. Ernst & Young has issued a fraud survey about risk in emerging markets.

Here are some "bits" from their executive survey:

"Developed country respondents are more likely to have suffered significant fraud at home or in subsidiaries in developed countries, and yet management admits greater unease about fraud exposure in emerging markets."

"Some 60% of respondents in developed countries believe their operations are at greater risk to fraud in emerging markets

Of the respondents that recently suffered a significant fraud, 75% experienced a fraud in their developed country operations, while 32% experienced a fraud in an emerging market

One in five respondents elected not to invest in certain emerging markets as a result of fraud risk assessments

Over a quarter of respondents fail to consider anti-fraud measures explicitly when they invest in a new market."

Full survey, here.

So most of the fraud is happening in developed countries, but we are afraid of "emerging markets?" Maybe we should be more worried about fraud trends on the home front?

Here is an interesting statement, again, from the survey:

"Despite this belief, there is little evidence that clearly indicates fraud has reduced. In fact, one in five of the companies that we interviewed experienced significant fraudulent activity in the past two years."

Does this mean that the controls, we have been implementing over the past few years don't work?

Controls are necessary for businesses and organizations in general, however their is a growing number of people that believe that we are doing a lot of processes that aren't very effective and are very "costly."

I'm not against compliance and controls, but unless they are effective (catch people committing fraud) - they are quickly defeated by the criminals. If fraud isn't going down after controls have been implemented, it's time to take a look at the controls.

The fraudster of today looks for ways to exploit controls, and they have been pretty successful in doing so.

Maybe this is why organized crime groups are becoming more and more involved in the activity. Some experts claim that fraud has become their number-one source of income.

Perhaps spending more of our resources on apprehension and prosecution would be money better spent!

So far as the survey - it doesn't surprise me that the dollar loss to fraud is much higher in developed countries. After all, fraudsters want money and there is more of it to be "stolen" in the "developed countries."


Anonymous said...

Wasn't Ernst & Young the ones that lost the laptops with all the information on them?

T.L. Stanley said...

I agree. We need to put these guys out of business. Law enforcement needs to be more bold and go after these criminals. Good post. Take care.