Fraud survey says bosses across much of the world ‘cook the books to meet tough targets’

Published: Tuesday May 7, 2013 MYT 7:58:00 AM

Fraud survey says world over bosses ‘cook the books to meet tough targets’

LONDON: Hard-pressed company bosses across much of the world are under so much pressure to deliver on growth that many have resorted to cooking the books, Ernst & Young says in its latest Fraud Survey published on Tuesday. One in five of almost 3,500 staff quizzed in 36 countries in Europe, the Middle East, Africa and India said they had seen financial manipulation in their companies in the last 12 months, the accounting and consultancy firm said. In addition 42 percent of board directors and top managers surveyed said they were aware of “some type of irregular financial reporting”. And despite scandals and regulatory failures in the wake of the credit crunch, almost a quarter of top financial services staff surveyed said they were aware of manipulation and almost 10 percent of all staff said their companies had understated costs, overstated revenues or used unprincipled sales tactics.Meanwhile, almost half of the sales staff surveyed across all sectors did not consider anti-corruption policies to be relevant and more than a quarter thought it acceptable to offer personal gifts or services to win or retain business.

In India, over a third felt justified in offering cash – triple the number in western Europe.

“Our survey shows that to find growth and improved performance in this environment, an alarming number appear to be comfortable with or aware of unethical conduct,” said David Stulb, head of E&Y’s fraud investigation and dispute services practice.

In Spain, ranked alongside Russia and just below Nigeria and Slovenia, 61 percent of staff believed companies often exaggerated results, compared with only 7 percent in Finland.

And E&Y said the vast majority of managers from Norway to Nigeria and Russia to Greece were feeling the pressure to deliver a good financial performance over the next 12 months, despite little optimism that business conditions would improve.

They were now forced to balance the risks of expanding into rapid-growth markets, where winning contracts can go hand-in-hand with corruption, cutting costs further and piling pressure on staff or suppliers – or distorting results, the firm said.

E&Y warned multinationals based in mature markets they could be more vulnerable to the risks of unethical behaviour. One quarter of those asked thought watchdogs in rapid-growth markets focussed more on the behaviour of foreign businesses.

The consultancy called on managers to ask more robust questions, focus on key risks, such as poor due diligence accounting checks of intermediaries and associates, and punish unethical behaviour. – Reuters

May 7, 2013 12:12 am

Nearly half of directors aware of financial irregularities

By Caroline Binham, Legal Correspondent

Nearly half of board members and senior managers of large companies across Europe, the Middle East, Africa and India are aware of irregularities in their own financial reports, as companies struggle to maintain healthy balance sheets, according to research that will make for worrying reading for shareholders, anti-fraud campaigners and prosecutors.

Some 42 per cent of directors and senior management have seen irregular financial reporting in their own companies, while one in five employees has personally witnessed financial manipulation – from overstating revenues or mis-selling products to customers – according to respondents to Ernst & Young’s annual fraud survey, which polled more than 3,000 employees across 36 countries.

In developing economies, the results are even more marked, with one in four employees reporting that they had seen misstatements in their companies’ reported results.

The survey shines a light on to the pressures that companies can succumb to in an effort to maintain their balance sheets in stagnant economies.

“To find growth and improved performance in this environment, an alarming number appear to be comfortable with or aware of unethical conduct,” said David Stulb, E&Y’s global head of fraud investigations. “This includes recording revenues early, underreporting costs or encouraging customers to buy unnecessary stock.”

Even highly regulated sectors such as financial services are not immune. A quarter of senior directors reported being aware of some sort of financial irregularity, while 9 per cent of respondents from financial services groups had seen evidence of pushing unsuitable products on customers in an effort to meet sales targets.

This was despite mis-selling scandals, such as that involving payment protection insurance, which has forced British banks to set aside £14bn since 2010.

Corruption is still commonplace across the globe, despite both the UK and US authorities now having sweeping jurisdictional reach to prosecute bribery by their respective citizens or companies, no matter where in the world it takes place.

India scores particularly badly in this area, with more than a third of respondents stating that it is acceptable to offer cash to win or keep business – triple the same answer gleaned from respondents in Western Europe, according to E&Y.

The overall results suggest multinationals with subsidiaries in developing countries are particularly at risk. The survey is published at a time when two FTSE 250 mining companies with sprawling worldwide assets, Bumi and ENRC, are grappling with allegations of financial misdeeds, now under the scrutiny of the UK’s Serious Fraud Office.

“If management does not conduct a sufficiently rigorous review or fully understand local operations, there is a risk that poor performance can be hidden,” E&Y said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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