- 61 percent of respondents in key rapid-growth markets say corruption is widespread
- 20 percent of businesses believe that their anti-bribery/anti-corruption policies make them less competitive
- 37 percent of respondents agree that companies often overstate their financial performance
LONDON, 14 May 2015 — EY’s Europe, Middle East, India and Africa (EMEIA) Fraud Survey, Fraud and corruption – the easy option for growth?, has found that greater pressure on businesses to grow revenues together with market volatility is creating increased risk in expansion opportunities. Challenges, including geopolitical instability, commodity and currency price volatility, as well as economic sanctions, are pushing companies and their executives toward high-risk behavior.
The survey, which polled 3,800 employees of large businesses[1] in 38 countries, found that nearly 33 percent of survey respondents report that management is under increased pressure to expand into higher-risk markets. In these markets, 61 percent of respondents see corruption in companies as widespread, and 37 percent of respondents report that companies often overstate their financial performance.
The risk of fraud, however, is not limited to rapid-growth markets[2]. Twenty-six percent of senior management respondents said they have heard of early recognition of revenue occurring in their organization in the past year – the type of behavior that has been at the center of numerous high-profile fraud incidents. In addition, 21 percent of respondents report that bad news about financial performance is not being shared openly.
David Stulb, Global Leader of EY’s Fraud Investigation & Dispute Services (FIDS) practice, says: “The risks of fraud, bribery and corruption are real. Businesses are facing complex restrictions in the way they conduct business with evolving sanctions regimes and new risks, such as cybercrime, having the potential to significantly disrupt operations. Businesses need to have their eyes wide open in their pursuit of high-risk growth strategies.”
For international companies operating in this region, participating in corrupt practices to move the company ahead could lead to huge monetary fines and possibly criminal prosecution. As Brian Loughman, EY Americas Leader of FIDS notes: “Increased enforcement of anti-bribery and -corruption statutes, and cooperation between jurisdictions, can foster more complex fraud schemes. The study reveals that 21 percent of respondents believe that their company’s unethical practices go unnoticed by the head office. This lack of oversight and effective compliance procedures will put companies at risk for prosecution by the DOJ and SEC.”
Are fraud and corruption the easy options for growth?
While senior management may be tempted to take risks to accelerate short-term growth, the survey shows a clear correlation in companies that are growing and are taking compliance seriously. Respondents whose business has experienced revenue growth in the last two years are:
- More likely to rate their company’s ethical standards as “very good”
- More likely to have or know about their company’s anti-bribery/anti-corruption policy
- More likely to see operations across markets meeting the same ethical standards
Stulb continues, “Our survey shows that 20 percent of employees believe anti-corruption policies will hold them back from growing their business. Our view is this shouldn’t be the case. To grow in a high-risk market, you need the right controls and processes. You need your teams to be trained to make the right choice when asked to pay a bribe or ‘cook the books,’ and you need the right tools to monitor activity so these risks can be addressed in a timely manner.”
Businesses are still not protecting themselves enough
Our survey shows that many businesses still do not have even the basic building blocks in place for effective compliance.
- 42 percent of respondents say that their company does not have an anti-bribery/anti-corruption policy, or are unaware of them
- 36 percent of respondents have not had anti-bribery/anti-corruption training
- 24 percent say their company does not have a whistleblowing hotline
The results also confirm that financial services organizations have responded to the intense pressure that they have been under from regulators, customers and others. Compared with other sectors, they are doing more to focus on compliance and the behaviors of their staff. But there are still gaps: there are respondents in the financial services sector who report that their business does not have an anti-bribery/anti-corruption policy or a whistleblowing hotline. Also, there are senior managers who are perceived as showing little attention to anti-money laundering rules, unauthorized trading or mis-selling issues.
Leadership’s commitment is critical
Not all senior management teams are communicating their commitment to high ethical standards. Furthermore, there is a disconnect between their view and that of more junior staff: 44 percent of senior management said they frequently communicate the importance of high ethical standards, but only 30 percent of employees agree.
Stulb concludes, “Businesses remain under intense pressure to grow and, in this market, operating in the gray area between legal and illegal may appear to some as a viable option. But our survey results show that this is a false choice, and that growth can be achieved while appropriately managing the risks of fraud and corruption. Effective compliance is not a barrier to growth; it is a requirement for sustained success.”
View the report online at: www.ey.com/FIDS
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About EY’s Europe, Middle East, India and Africa Fraud Survey 2015, Fraud and corruption – the easy option for growth?
Between December 2014 and January 2015, our researcher — the global market research agency Ipsos —conducted 3,800 interviews with employees of large companies in 38 countries online or in person. Interviews were conducted on an anonymous basis using local language in all countries.
[1] Large companies are defined as those with more than 150, 250, 1,000 or 1,500 employees globally, depending on the country, or as quoted on a stock exchange or are multinationals.
[2] For the purposes of this report, “developed” countries include Austria, Belgium, Denmark, Finland, Germany, Greece, Ireland, Italy Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the UK. The “rapid-growth” countries, taken from our Rapid-Growth Markets Forecast: July 2014, include Czech Republic, Egypt, India, Nigeria, Poland, Russia, Saudi Arabia, South Africa, Turkey, UAE and Ukraine.
