New survey reports majority of companies not prepared to conduct investigations; most are ‘putting out fires’ when fraud is discovered
MENLO PARK, Calif., January 14, 2016 – According to a new joint study issued by global consulting firm Protiviti and the Economic Crime and Justice Studies Department at Utica College, companies are not well-positioned to prevent corporate fraud nor conduct investigations, creating a significant potential liability to their executives and shareholder value. These limitations, observed across the majority of respondents, also lessen the likelihood that those companies will receive full cooperation credit from the U.S. Department of Justice when seeking to negotiate a settlement stemming from a government investigation. The survey also found that nearly half of the companies surveyed (48 percent) fail to conduct a formal fraud risk assessment on at least an annual basis and a troubling 27 percent have never implemented a formal fraud risk assessment. Only a scant 6 percent of all respondents reported a high level of confidence in their organization’s vendor fraud and corruption risk oversight.
The 2016 White Collar Crime and Fraud Risk Study (www.protiviti.com/fraudsurvey) explores corporate crime and the fraud risk management practices used to combat that crime, based on a survey of more than 270 C-level executives, board members, audit directors and risk managers from a cross-section of industries. With the typical organization losing an estimated five percent of its annual revenue to fraud, organizations cannot afford not to take an urgent and strategic approach to fighting white collar crime and fraud.
Challenges in Managing Fraud Risk
In response to the question, ‘Which of the following challenges does your organization face in managing its fraud risk proactively?’ survey participants responded as follows:
Who Owns Fraud Risk Management
Responsibility for fraud risk management tends to fall to the CFO in most companies, as the survey findings reveal based on the question:
‘Who in the ranks of senior management is designated with ownership and responsibility for fraud risk management in your organization?’
While the majority of companies conduct ethics and fraud awareness training, fewer than half overall (46 percent) do so at the recommended frequency of at least once annually, and more than half of all organizations lack a fraud detection program (though the numbers are better for large companies). Additionally, while most respondents indicated that their company has a telephone hotline, website or electronic mailbox for employees to report fraud, only 13 percent regularly conduct surprise audits.
The survey also found that the most significant areas of concern for organizations to address with regard to COSO Principle 8 were “Safeguarding of assets” (22 percent) and “Management override of controls” (20 percent). The updated 2013 COSO internal control framework is the new governance standard for most publicly traded companies – and a foundational element of Sarbanes-Oxley compliance. It requires that companies consider the risk that individuals or entities may act outside the organization’s expected standards of ethical conduct.
“Fraud detection techniques, such as having a code of conduct set in place, employee background checks, awareness training, third-party due diligence and surprise audits, are crucial in not only detecting risk, but also proactively preparing for future threats,” said Donald Rebovich, professor of criminal justice and executive director of the Center for Identity Management and Information Protection at Utica College. “A program that engages all levels and departments in prevention and detection is vital to a company’s financial health and reputation.”
About the Survey
The Protiviti and Utica College 2016 White Collar Crime and Fraud Risk Study was fielded in July 2015 across the globe; the majority of respondents were in North America. Respondents work in the public, private, government and non-profit sectors and are representative of virtually all industry sectors.
The survey report, along with an infographic highlighting key results, a podcast and a short video are available for complimentary download at www.protiviti.com/fraudsurvey.
Webinar on January 27
Key findings from the survey will be discussed in a complimentary webinar on January 27 at 9:00 a.m. PST. Protiviti's Moritz and Utica College’s Rebovich will be joined by Peter Grupe, a Protiviti director and the former head of the White Collar Crime branch of the New York Field Office of the Federal Bureau of Investigation, and Pamela Verick, a Protiviti director and widely recognized subject-matter expert on fraud and corruption risk. Guest speaker George Stamboulidis, co-leader of law firm BakerHostetler’s national White Collar Defense and Corporate Investigations Practice will add his insights during the 90-minute webinar. Please register at www.protiviti.com/webinars.
About Utica College
Utica College, founded in 1946, is a comprehensive private institution offering bachelors, masters and doctoral degrees. The College, located in upstate central New York, approximately 90 miles west of Albany and 50 miles east of Syracuse, currently enrolls approximately 4,500 students in 44 undergraduate majors, 30 minors, 21 graduate programs and a number of pre-professional and special programs.