European fraud survey 2009: Is integrity a casualty of the downturn?

The current state of the market has had an impact on all areas of corporate financial performance. This has, for many companies, become a time when survival rather than growth. It is in this context that this year’s European fraud survey from Ernst & Young was undertaken, and the issues it raises demonstrate that now, more than ever, fraud should be high on the agenda of boards and senior management.

The 2009 survey conducted a total of 2,246 interviews with employees across 22 European countries. Participants were employed in companies with over 1,000 employees, stock exchange-listed or multinationals. The report highlights a number of important themes, including the perceived depth of commitment of management to fraud risk mitigation and what employees expect from the regulators of their companies.

The survey finds an alarmingly high tolerance of unethical business behaviour within organisations, with many employees tolerating unethical behaviour including bribery by their company in order to survive the current economic storm. Indeed senior management are even more likely than rank and file to condone activities such as cash bribes and financial statement fraud.  The research also suggests that employees expect regulators to do more to protect them from wayward management and to ensure their business leaders are compelled to conduct business in an ethical manner.

Other key findings include:

• Survey respondents believe the likelihood of fraud and corruption is set to rise further still. 55% of the respondents expect corporate fraud to increase over the next few years.

• Corporate responses to the downturn can create new opportunities for fraudsters if staff redundancies open gaps in financial controls. 36% of our respondents believe that normal policies and procedures are likely to be overlooked as staff redundancies are made.

• The trend of consolidation during an economic downturn can also disrupt ongoing efforts by corporates to prevent fraud. Almost half of our respondents believe that the differing standards of behaviour that are held by two merging companies poses a major challenge to anti-fraud efforts.

The full report can be downloaded from the Ernst & Young website

Picture from Creative Commons: Flickr: buildscharacter