Informations-gold assetsPwC

Introduction

Level of economic crimeCentral and Eastern EuropeGlobalNumber of companies that have been victims of economic crime in the last two years

The perceived prevalence of different types of fraud % respondents% respondentsGlobalCentral and Eastern Europe

The financial cost of fraudThe average loss per company from fraud US $2,199,930

Data numbers

Fig. 1: Victims of fraudFig. 2: Victims of fraud (by region)Figure 3: Victims of fraud (by organisation size)Figure 4: Victims of fraud by industry (worldwide)

Yes37%Africa51NoYesConstruction33

No63%Asia & Pacific39More than 1000 Employees4852Manufacturing & Industrial products38

N America41Less than 1000 Employees6337Automoive & Aerospace38

South & Central America38Other financial services40

C&E Europe37Pharma & Biotech41

W Europe34Energy & Utilities44

Retail & Consumer45

Services46

IT & IT Services47

Telecom & Media47

Insurance49

Banking54

Victims of fraud (worldwide)

0.37

0.63

Figure 1: Victims of fraud (worldwide)

Victims of fraud (by region)

51

39

41

38

37

34

Figure 2: Victims of fraud (by region)

Victims of fraud (by size)

4852

6337

No

Yes

Figure 3: Victims of fraud (by organisation size)

Victims of fraud (by industry)

33

38

38

40

41

44

45

46

47

47

49

54

% respondents by industry

Figure 4: Victims of fraud by industry (worldwide)

Data types

Fig 5: Types of fraud experiencedFig. 6: prev -v- incidenceActual IncidencePerceived PrevalenceFig 8: Types of corruption

Product Piracy19Product Piracy88Solicited/received a bribe45%

Industrial Espionage7Industrial Espionage32Offered/paid a bribe43%

Cybercrime15Cybercrime64

Money Laundering3Money Laundering16

Corruption & Bribery14Corruption & Bribery629

Financial Misrepresentation10Financial Misrepresentation419

Asset Misappropriation60Asset Misappropriation2626

Types of fraud experienced

19

7

15

3

14

10

60

% respondents

Figure 5: Types of fraud experienced (worldwide)

Prevalence -v- incidence

88

32

64

16

629

419

2626

Actual Incidence

Perceived Prevalence

% respondents

Figure 6: Frauds considered most prevalent compared with their actual incidence (worldwide)

Data costs

Figure 8: financial lossFigure 9: Average loss by type of fraud

up to 10k13Asset Misappropriation$1,388,731

10k to 50k12Corruption & Bribery$3,766,088

50k to 250k17Cybercrime$812,318

250k to 1m12Industrial Espionage$4,191,101

1m to 10m11Product Piracy$3,865,857

More than 10m3

Difficult to put a figure on32

Figure 10: Collateral cost of fraud

ReputationBrand ImageShare PriceStaff moraleBusiness relations

Asset Misappropriation14844917

Financial Misrepresentation3117144637

Corruption & Bribery (solicited/received)231484626

Corruption & Bribery (offered/paid)191253724

Money Laundering141183022

Cybercrime13952815

Industrial Espionage2020104139

Product Piracy3135122538

Fig.11: short v long term

Short termLong term

Reputation7135

Brand image6737

Share price5747

Staff morale7530

Business relationship7331

Financial loss

13

12

17

12

11

3

32

% respondents

Financial loss through fraud (worldwide)

average loss

1388731

3766088

812318

4191101

3865857

Figure 9: Average loss by type of fraud over last two years (worldwide)

collateral cost

14844917

3117144637

231484626

191253724

141183022

13952815

2020104139

3135122538

Reputation

Brand Image

Share Price

Staff morale

Business relations

Short -v- long term impact

7135

6737

5747

7530

7331

Short term

Long term

% respondents

Figure 11: Short term -v- long term impact of economic crime (worldwide)

Data detect

Fig.12: detecting fraudFig.16: Corrective measures

Other25Other26

Accidentally32Whistleblowing28

Risk management systems26Public source information33

By internal or external audit47Pre-employment screening50

By changes in management10Consideration of fraud in risk management systems52

By a tip-off27Organisation ethics or a code of conduct64

Specific fraud training for management28

Fig.13: reporting bodies

Other12

Board of management42

Internal Audit33

Audit committee25

Board of directors61

Fig.14: dealing with fraud

Don't know4

Other18

External legal counsel8

External auditors3

Internal legal counsel14

Internal audit20

Board of directors33

Fig.15: Recoveries + insurance

01 to 60%61 to 100%

Companies without insurance24697

Companies with insurance324820

Detecting economic crime

25

32

26

47

10

27

% respondents

Figure 12: How economic crime is detected

reporting boards

12

42

33

25

61

% respondents

Figure 13: Bodies to which economic crime must be reported (worldwide)

Dealing with fraud

4

18

8

3

14

20

33

% respondents

Figure 14: Responsibility for dealing with economic crime (worldwide)

Recoveries + insurance

24697

324820

0

1 to 60%

61 to 100%

Figure 15: Recoveries of companies with and without insurance (worldwide)

corrective measures

26

28

33

50

52

64

28

% respondents

Figure 16: Types of corrective measures (worldwide)

data risk mgmt

Fig.17: Confidence in frm systemsFig.19: prev -v- future

Not confidentQuite confidentvery confidentFuture ConcernsPerceived Prevalence

Africa-96125Product Piracy168

Asia & Pacific-105127Industrial Espionage132

N America-25640Cybercrime314

South & Central America-46324Money Laundering56

C & E Europe-35733Corruption & Bribery2129

W Europe-75628Financial Misrepresentation1619

Global-65629Asset Misappropriation3526

Fig.18: Increase of fraud risk?

Less likelyMore likelyMuch more likely

Africa-222220

Asia & Pacific-222710

N America-14298

South & Central America-39185

C & E Europe-44153

W Europe-15317

Global-24267

Confidence in frm

-96125

-105127

-25640

-46324

-35733

-75628

-65629

% respondents

Figure 17: Confidence in fraud risk management systems

future fraud risk increase

-222220

-222710

-14298

-39185

-44153

-15317

-24267

Less likely

More likely

Much more likely

% respondents

Figure 18: Expectation as to whether fraud risk will increase over the next 5 years

Prevalence -v- concerns

168

132

314

56

2129

1619

3526

Future Concerns

Perceived Prevalence

% respondents

Figure 19: Economic crimes considered most prevalent -v- future concerns (worldwide)

appendices

appx: size of organisations

over 5,00110

1,001 - 5,00025

201 - 1,00039

under 20025

appx: industry sectors

Financial services13

Manufacturing57

Services30

appendix - respondents

Western Europe1476South & Central America554

Austria83Argentina96

Belgium90Brazil86

Denmark88Chile53

France156Colombia48

Germany150Dominican Republic31

Greece59Guatemala30

Italy159Mexico87

Netherlands103Peru51

Norway90Uruguay36

Portugal50Venezuela36

Spain106

Sweden91

Switzerland89North America194

UK & Eire162Canada103

USA *91

Central & Eastern Europe378

Baltic States: Estonia, Latvia, Lithuania25Asia & Pacific878

Bulgaria25Australia100

Czech Republic50Hong Kong85

Hungary25India85

Poland85Indonesia85

Romania29Japan *423

Russia29Singapore50

Slovak Republic31Thailand50

Slovenia27

Turkey52

Africa143

Algeria21

Target number of respondents for each country wasMorocco17

determined according to its GDPSouth Africa91

*weighted in the statistics to reflect a base of 150 respondentsTunisia14

- the target number according to the country's GDP

appendix - size of participants

10

25

39

25

% respondents

The size of participating organisations

appendix - industry sectors

13

57

30

b

Industry sectors

appendix - terminology

Fraud / economic crimeThe intentional use of deceit to deprive another of money, property or a legal right

Asset misappropriationThe theft of company assets (including monetary assets, cash and supplies/equipment) by company directors, others in fiduciary positions or an employee for their own benefit

Financial misrepresentationCompany accounts are altered or presented in such a way that they do not reflect the true value or financial activities of the company.

Corruption & bribery (inc. racketeering & extortion)The unlawful use of an official position to gain an advantage in contravention of duty. This can involve the promise of an economic benefit or other favour, the use of intimidation or balckmail. It can also refer to the acceptance of such inducements.

Money LaunderingActions intended to legitimise the proceeds of crime by disguising their true origin.

Cybercrime (e.g. hacking, virus attacks, denial of service, electronic theft of proprietary information)The illegal access to a computer or computer network to cause damage or theft.

Industrial espionage & information brokerageThe acquiring of trade secrets or company information by secretive or illegal means and/or the selling of these secrets or information to interested parties.

Product piracy / counterfeitingThe illegal copying and/or distribution of fake branded goods in breach of patent or copyright. This also includes the creation of false currency notes & coins with the intention of passing them on as genuine.

Economic crime risks of the futureGlobalCentral and Eastern Europe

Where fraud happensAway from Head OfficeOutside the mainstream businessIn acquired business In new marketsIn bureaucraciesWhere management and supervision is poor

Description and characteristics of fraudThe primary factor that distinguishes fraud from error is whether the underlying action is intentional or unintentional.The most common type of fraud is asset misappropriation.Most fraud tends to be carried out by employees.

Description and characteristics of fraud Red FlagsThe three conditions generally present in a possible fraud situation are:

_1131545866.doc

Incentive/ Motive

Opportunity

Why

Commit

Fraud?

Rational judgment/Relation between consequences and benefit

The nature of Industrial EspionageAll companies are targets, especially high tech industriesAll types of proprietary information is stolenDisloyal employees are the key vulnerability A lot is probably undiscovered

Industrial Espionage what is stolen?Information on new products Details of manufacturing processes Company operations, budgets, financial statementsLong-range plans and strategiesTechnical designs and blueprints Bid informationMarketing planes and strategiesResearch results, formulae, samples Patent informationPrice informationSales informationLitigation strategiesPersonnel informationIn order of priority, incidents have shown that the fallowing information is targeted and stolen:

Industrial Espionage how are the losses discovered?Most cases of industrial espionage go undiscoveredMost legitimate companies do not want unwittingly to get involved in dirty tricksMost often, therefore, the victim company is approached by a competitor third party who has been approached by the spy Most companies suspect they have been victims of industrial espionage only whenformer employees start their own businessesformer employees join competitors their trade secrets turn up in the hands of others

A Strategic Approach to Security and Fraud PreventionObjective To improve the organisation`s security and fraud prevention as quickly and cost-effectively as possible, to equal its competitors and satisfy the regulatorsScopeAll assets

A Strategic Approach to Security and Fraud PreventionVision Appropriate protection for all assets in a cost-effective and efficient manner.Competitive advantage, improved customer service and enhanced market image as a result of the organisation`s recognised commitment to the security and fraud prevention.Measurement and compliance techniques to ensure losses resulting from fraud and breaches of security can be identified and reduced over time.

SolutionsAssess existing & future fraud vulnerabilitiesPerceive all possible risks of econimic crimeEstablish policies, procedures and regulations for the protection of possible fraud

Risk Management OptionsIgnoreAcceptAvoidControlBusiness Continuity PlanningInsurance

Risk Management Options HIGHLOWLOWHIGHB C PAVOID ACCEPTCONTROLIMPACTFREQENCY

Principles, Policies & Standards The most important is that prescribed principles and polices are to be followed by all employees PrinciplesPoliciesDetailed Standards

ChallengesCORPORATE GOVERNANCETRANSPARENCYLEGISLATIONEDUCATION

Education

PwC Fraud Training ToolProvides appreciation of how to carry out an investigation in a safe environmentGives an insight into how fraud red flags can be identified whilst highlighting potential pitfalls

Pursue - Simulated fraud investigation

PwC Fraud Training ToolBased on real fraud investigations Television quality pictures and soundMixes film sequences & actors who can be interviewedWith a virtual reality office containing documents and objects that can be reviewed for evidenceAnd it scores your performance! Its an interactive game

The Virtual Office

Can you search the office for documents?

Can you review documents?

Can you interview staff?

Computer Forensics - examine the PC

Identify the Fraudsters seal their fate

Find the Fraudster(s)

Your worldsOur peoplemiroslava.milenovic@ yu.pwc.com