Nearly one-third of corporate executives expect fraud or misconduct to rise in their organizations, according to a survey by the audit, tax and advisory firm KPMG LLP. Two-thirds of the respondents said combating fraud and misconduct may require more improvements in corporate internal control environments. Thirty-two percent of the executives surveyed said they expected fraud or misconduct to rise in their organizations in one of three categories: financial reporting, asset misappropriation, or as another illegal or unethical act.
“Despite some very high profile prosecutions and the pledges of rigorous enforcement by various government watchdogs, one of the country’s most troubled economic periods has created a perfect storm of increased pressures, new opportunities and dangerous rationalizations to allow business fraud and misconduct to occur,” said Richard H. Girgenti, national leader of Forensic for KPMG.
Executives’ expectations regarding changes in the incidence by type of fraud:
- Eight percent of respondents said fraudulent financial reporting would increase, while 66 percent said it would stay the same;
- One-quarter of respondents expected asset misappropriation to rise, and 60 percent said it would stay the same;
- 20 percent of those surveyed said they expected other illegal or unethical acts to rise, while 60 percent said they would remain the same.
The “volatile” mix of issues dominates the market as the turbulent economy pushes companies to make due with less resources–cutting payrolls, pushing employees to maintain output, and causing workers to do “whatever it takes” to achieve earnings goals. The government’s intense focus on illegal activity also seems to add to the pressure.
“This survey also uncovered a need for improvements in corporate programs designed to prevent, detect and respond to wrongdoing,” said Girgenti:
- The executives surveyed said improvements were needed around communication and training (67 percent), technology-driven techniques, e.g., auditing and monitoring (65 percent), and fraud risk assessments (60 percent).
- About 27 percent of respondents reported that their organizations did not fully understand how to conduct investigations, and at what point the board of directors should be alerted to potential concerns. In addition, 33 percent said they lacked protocols on how to remedy control breakdowns.
As a result of the economic crisis, it is likely that further regulatory changes will take place. “Companies that strengthen their corporate controls and compliance programs to confront fraud and misconduct risks have a better chance of prospering as the market improves,” added Girgenti.