Reported Rates Higher in Canada

Eric Beauchesne, CanWest News Service - Ottawa

Nearly half of Canadian companies say they've been victims of fraud during the past two years, a much greater proportion than the 37 per cent of companies globally that admit to being targets, new survey results show.

But the higher numbers may be simply because Canadian firms are more aware of, and more willing to admit to, having been victims of economic crime, including the theft of assets, financial misrepresentation, or corruption and bribery which are more common globally than in Canada, said one of the survey analysts.

"Thirty-seven per cent of companies worldwide have suffered from fraud, with an average loss of over $2 million," according to an analysis of the PricewaterhouseCoopers 2003 Global Economic Crime Survey released Tuesday.

"In Canada, almost 50 per cent of companies surveyed reported being victim of an economic crime in the past two years," it said. "In spite of this, 60 per cent of these same companies are quite confident that their existing control systems are effective enough to minimize financial losses."

Respondents in Africa, followed by those in North America, reported the highest levels of economic crime. Steven Henderson, with PricewaterhouseCoopers Investigations & Forensic Services Practice in Canada, said in an interview that there is a "greater awareness" of the issue in North America than elsewhere and possibly a greater willingness to admit to being a victim of crime.

The survey found Canadian firms were also much more likely than firms globally to have in place policies to help prevent and detect such crimes, including pre-employment screening, whistle-blowing and risk-management systems.

They were also much more likely, at 86 per cent, to have insurance against such losses than the 50 per cent of firms globally. However, the impact of fraud on a company's reputation, brand image, staff morale and even its share price can be greater than the direct financial loss.

"Approximately half of the companies both in Canada and on a global level report that economic crime had the greatest impact on staff morale and motivation," the analysis stated.

"Less than five per cent of Canadian companies reported that economic crime impacted the share price despite the fact that approximately 20 per cent indicated it affected their reputation and business relationships."

The survey of more than 3,600 corporate executives in 50 countries found that larger companies, with more than 1,000 employees in a country, are most vulnerable to fraud with 52 per cent reporting economic crime in the past two years, compared with only 37 per cent of smaller companies.

The investment of larger companies in foreign markets, the transfer of management control, and their greater investment in fraud risk-management systems help to explain higher detection rates of fraud, the analysis said.

However, the incidences of fraud are likely understated. For example, in Canada, one-fifth of fraud cases are uncovered by chance, the analysis noted.

"There will be frauds that organizations never uncover and others that are treated as commercial losses," said Henderson. "In addition, there is a reluctance to divulge certain frauds that occur."

The survey found that most companies expect fraud to increase over the next five years with the greatest risk being the theft of assets, followed closely by cybercrimes such as computer hacking, virus attacks and theft of electronic data.

Crime Ledger

• In the past two years, 37 per cent of companies worldwide have suffered from fraud, with an average loss of more than $3 million Cdn. Almost 50 per cent of the Canadian companies surveyed reported being a victim of an economic crime.
• Less than five per cent of Canadian companies reported that economic crime impacted the share price despite the fact approximately 20 per cent indicated it affected their reputation and business relationships.
• 40 per cent of Canadian companies surveyed have implemented whistle-blowing systems compared to 28 per cent globally.

Source: Beauchesne, Eric. Fraud Strikes Half of Firms, Calgary Herald, July 9, 2003, P. C1.