February/March 2010 / Cover Story
Fraud in a Downturn
According to PricewaterhouseCoopers’ 2009 Global Economic Crime Survey, companies experience similar risk of fraud whether or not they are severely affected by the recession. The expectation had been that companies faring worst would experience more fraud. That was the case in the United States, where there was a clear correlation between poor financial performance and incidence of fraud. The fraud rate among U.S. companies suffering financial decline was 42 percent, while the rate among financially stable companies was 17 percent.
Incidence of fraud by middle management has risen sharply, accounting for more than 40 percent of internal fraud. In 2007, the figure was 26 percent. Pressure on middle managers to reach performance targets in a difficult economy was identified as the major fraud incentive. Increased opportunity created by staff reductions was also cited as a factor.
Among U.S. respondents, there is a high perception of risk for bribery and corruption crime, likely due to publicity around the Foreign Corrupt Practices Act. FCPA settlements and costs have risen sharply in the last few years. Disgorgement of profits by way of FCPA settlements has risen as well. Between 2004 and 2008, $480 million in profits was disgorged.
DOJ investigations center on industries that do business in countries where officials expect bribes. Energy, medical devices, healthcare and telecommunications companies are being closely scrutinized.
