Swiss firms struggling to contain fraud

Fraud still casts its shadowy figure Ex-press

Swiss companies are reporting the same levels of fraud as two years ago despite implementing ever more sophisticated control systems, a study reveals.

The latest economic crime survey from PricewaterhouseCoopers (PwC) also shows complacency towards future violations and recommends stronger whistle-blowing regulation in Switzerland.

The survey of 84 of Switzerland’s largest companies found that 37 per cent of respondents had reported at least one case of corruption within their ranks over the past two years – the same percentage as the last study in 2005.

This is below the global average of 43 per cent and 38 per cent in western Europe. Nearly half of all the enterprises surveyed in Germany and Britain and 53 per cent of US firms admitted to being the victims of economic crime.

This could include bribery, money laundering, false accounting, copyright violation or simply stealing money from the firm. Companies dealing with emerging markets appeared more likely to encounter such cases.

John Wilkinson, leader of PwC’s forensic services department, told swissinfo that he had expected the number of Swiss cases to sink from 2005.

“It does surprise us given the investment in control structures that the number of reported cases has not fallen. But there is a fraud controls paradox, in that the more you invest in controls the more fraud you find,” he said.

Worrying complacency

This could explain why larger companies with more employees reported more cases of fraud than smaller counterparts. The insurance and retail sectors were worst affected followed by government and public services.

Despite the continuing level of economic crime, only eight per cent of Swiss companies thought they would be subject to fraud in the future and nearly half said it was very unlikely. Only a fifth of these companies plan further measures to crackdown on the problem.

And in many cases, companies had a false impression of who was committing the crimes, Wilkinson added.

“We have seen that controls over normal employees (lower level permanent staff) is fine but when you look at who is actually committing these crimes it tends to be senior members of the organisation or, as we have seen for the first time, temporary staff,” he told swissinfo.

By far the most effective method of combating economic crime came from within the companies in the shape of whistle-blowers or external tip-offs (56% of all reported cases).

Employee protection

However, only a fifth of Swiss firms have formal whistle-blowing mechanisms compared to a global average of 42 per cent. A parliamentary motion to protect employees who bring corruption to light was passed earlier this year, but it will be months before laws are finally enacted in Switzerland.

“We believe that it is absolutely required that whistle-blowing protection is put into place,” Wilkinson told swissinfo.

“We have seen in every survey we have done in the last eight years that the best way to detect, and therefore prevent fraud, is to have some system that allows people to report cases where they have valid suspicions while ensuring their job security.”

swissinfo, Matthew Allen in Zurich

In brief

The PwC Global Economic Crime Survey 2007 questioned 5,400 companies in 40 countries.

The average direct financial loss per company increased nearly 40% in two years from $1.7 million (SFr2 million) in 2003-2005 to $2.4 million (SFr2.84 million) in 2005-2007.

This figure rises dramatically to over $5 million (SFr5.9 million) when calculating the average losses sustained when doing business in the E7 block of Brazil, Mexico, China, India, Indonesia, Russia and Turkey in the past two years.

Worldwide, 43% of all firms surveyed admitted to being the victim of economic crime (45% in 2005).

In western Europe this proportion fell to 38% (42% in 2005), while the biggest drop in reported fraud came from Africa (77% in 2005 – 52% in 2007).

Companies in central and eastern Europe reported the only increase in economic crime – up 3% to exactly half of all respondents. The rate stayed the same in the North American continent (52%) and in the Asia/Pacific area (39%).

South and Central America recorded a slight drop in reported fraud from 2005 (41% now 39%).

Profile of a fraudster

The PwC identikit of the “average” Swiss perpetrator of economic crime inside a company is male (85%), between 31-50 years of age, with more than half in middle or senior management positions.

Ironically, the common characteristics of such people (risk-takers, extroverts, success-oriented) are the traits also highly prized in management.

However, this year’s report found for the first time that 27% of Swiss fraudsters were part-time employees or helpers.

The biggest motivator for committing such crimes was greed, followed by a “low temptation threshold”, ignorance of doing anything wrong and maintaining an expensive lifestyle.