Tuesday, December 1, 2009

Lies, Damn Lies and Statistics

Seems to be the season for publishing the results of surveys and other research - I just got finished reviewing PricewaterhouseCooper's excellent report,

MoneyImage by TW Collins via Flickr

The Global Economic Crime Survey which contains some great data for those of us concerned about fraud and other financial misconduct to consider.

One of the things that stuck out to me - especially considering the results from the ERC's 2009 National Business Ethics Survey - was that PwC did not see any statistical difference in the level of economic crime for companies that had suffered during the economic downturn from those that did not suffer. Hence, they conclude that economic crime remains a pervasive business risk, which does not discriminate among its victims based on the relative degree of their financial performance. They do note, however, that organizations sufferng from the downturn did report higher levels of accounting fraud.

Among the other data I found interesting:
  • Tips were the detection method in 34% of the cases - with the hotline system accounting for only 7% - reinforcing the need to both foster an environment in which your employees and others feel comfortable bringing issues forward in conversations as well as the need for a consistent approach to capturing and investigating these issues
  • While internal audit is consistently detecting less of the reported frauds over time, the combination of anti-fraud controls and a strong ethical culture appears to be improving the detection of economic crime
  • There is a correlation between reported frauds and the frequency of fraud risk assessments - In other words, if you look for it, you will find it.
Finally, and what should concern you if you hold a leadership position within your organization, respondents have consistently underestimated their exposure to fraud. Regardless of the research you're reviewing, the data is pretty compelling - fraud and other misconduct occurs in good economic times and bad. Having a strong ethical culture and good controls reduces the amount of fraud, and its associated losses. So what are you doing to reduce your risk?
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