Report: Fraud rising as compliance struggles for recognition

Ernst & Young Fraud Survey indicates continued need for anti-fraud measures, even against a tough financial background

The past two years have seen a spike in instances of fraud, according to a survey by Ernst & Young. This is particularly substantial in western Europe, where 21% of respondents suffered a significant fraud during that time period, compared with 10% in the previous global survey.

However, this could be a result of the way fraud has come under the spotlight in recent years. David Stulb, global leader of Ernst & Young's fraud investigation and dispute services practices says: "Regulators in western Europe have become much more aggressive and have been using US-style investigative techniques and settlement practices. In some jurisdictions, such as the UK, significant outreach efforts to encourage whistleblowers have been undertaken. These efforts are believed to have already yielded results."

Stulb explains that legislative developments have also been a factor. "While there was lively debate over the UK Bribery Act in the weeks before its passage, the final version of the Act is very robust, including penalties against corporations for failing to prevent bribery."

At the same time, there has been a drop in resources available to those that must prevent and react to instances of fraud. Ernst & Young states that one in five of the survey respondents from legal departments have seen their budgets fall in the last year.

Stulb says: "The UK lawyers and compliance officers I regularly meet are eager to hear about new and emerging risks for their organisations and what steps they can take to mitigate them. However, I suspect many of them face significant internal challenges to secure the investment required to take these steps."

The survey also shows the growing, and uncertain, nature of compliance as a specialty. More than half of those in the field have been in a compliance role for less than five years. This reflects the substantial growth in recruitment in this area, but also suggests some challenges ahead. Outside of specialist fields, there can be a lack of appreciation for the role that compliance can play in an organisation. Some 70% of chief compliance officers interviewed said demonstrating the value of compliance to the wider organisation was a significant challenge.

According to Stulb, though, this can be related to the industry that officers work in, particularly those under the scrutiny of external regulators.

"Many companies operating in heavily regulated industries, such as financial services and life sciences, have developed sophisticated compliance and internal audit systems. They are keenly aware of the value brought by investing time and effort to protect their brand, and, as a result, compliance is already high on their corporate agenda."

The report also looks at growth in the next year, in particular mergers and acquisitions. Fifty-three percent of global respondents said they are targeting growth for their companies in the next year, with 42% in Japan targeting aggressive growth.

This is likely to throw up particular issues as groups expand into new markets with different cultural practices, emphasising the importance of thorough due diligence pre-acquisition.

The full report can be found here