Fraud in corporate environment - results of the survey 31 May 2005

Fraud in corporate environment- results of the survey

31 May 2005

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Fraud level and perception

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Experiencing fraud in company

The vast majority of the surveyed chairmen (64%) encountered fraud in the last three years.

Have you experienced fraud in the course of your business activity in the last three years?

59%

64%

41%

36%

2003

2004

Yes No

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Recorded losses

17 % of respondents could not determine losses due to fraud (2003 - 16%);3 % of respondents lost over PLN 5,000,000, which constitutes a significant decrease compared to the last year and may be the result of a wider spectrum of the surveyed population.

Responses of the surveyed who encountered fraud in the course

of their business activity over the last three years

What was the total amount of losses (in PLN) resulting from fraud identified over the last three years?

20% 20%

10% 10%12% 11%

17%

28%26%

9%11%

7%

3%

16%

less than 50 000 50 001- 250 000 250 001-500 000 500 001-1 000 000 1 000 001 - 5 000 000 more than 5 000 000 Do not know

2003

2004

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Fraud level

13 % of respondents did not know the scale of fraud.

How many cases of fraud have occurred in your company in the last three years?

12%

13%78%

75%

7%

4%

1%

3% 6%

1%

2003

2004

1-10 11-20 21-50 more than 50 do not know

Responses of the surveyed who encountered fraud in the course

of their business activity over the last three years

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Impact and consequences

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Fraud consequences

Most often quoted consequences include:•lower employee morale;•weakened company reputation.

Do your believe that fraud in your company has led to:

57

30

26

10

51

51

23

15

7

14

lower employee morale

weakened companyreputation

loss of businesspartners

loss of shareholders'trust*

other consequences

2003

2004

Responses of the surveyed who encountered fraud in the course

of their business activity over the last three years

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Does fraud in Poland decrease inflow of foreign investments?

68% of the surveyed chairmen believe that there is a strong correlation between the inflow of foreign capital and fraud level.

Does fraud in Poland decrease inflow of foreign investments?

28%

24%

50%

44% 21%

13%

1%

3% 8%

8%2003

2004

definitely yes rather yes rather no definitely no hard to say

Fraud detection

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Fraud detection level

Fraud in corporate environment is not commonly detected.

Only every third respondent who has encountered fraud in his own company believes that fraud detection exceeds 75%.

Over 26 % of companies do not know the percentage of detected fraud cases.

Responses of the surveyed who encountered fraud in the course

of their business activity over the last three years

Please assess the percentage of fraud cases that you managed to detect in your company in the last three years?

31%

31%

20%

26%5%

4%

15%

20%

10%

13% 12%

13%

2003

2004

No cases was detected Below 25% 26% - 50% 51%-75% Over 75% Do not know

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

What is fraud detected?

Most popular fraud detection methods include:• routine supervisory activities of the company’s management;

• whistle blowing;

• internal audit.

How has fraud been detected in your company?

66%

43%

42%

21%

8%

13%

6%

7%

70%

42%

31%

20%

17%

7%

6%

4%

3%

routine supervisory activities ofmanagement

information from employee

internal auditor

coincidence

whistle blowing

law enforcement bodies

risk management system

external auditor

other ways

2003

2004

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Who is responsible for fraud?

In most cases, fraud is committed by employees.

Who was responsible for fraud in your company?

61%

35%

14%

21%

30%

3%

7%

2%

67%

23%

21%

20%

18%

15%

7%

6%

2%

Employee

Junior manager

Supplier

Senior manager

Customer

Agent/representativenot being employee

Public service officer

Competitor

Other persons

20032004

Responses of the surveyed who encountered fraud in the course

of their business activity over the last three years

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Departments most exposed to fraud

Sales and procurement departments are most exposed to fraud.

Responses of the surveyed who encountered fraud in the course

of their business activity over the last three years

In what areas/ departments of your company has fraud been observed?

54%

41%

12%

18%

14%

5%

7%

14%

49%

42%

22%

13%

13%

5%

3%

3%

10%

Sales

Procurement

Production

Marketing

Finance

HR

I T

Payroll

Other

2003

2004

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Reporting and loss recovery

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Fraud reporting

49% of respondents disclose losses due to fraud in their annual financial statements (in 2003 – 57%).

Has your company disclosed losses due to fraud in the financial statements for the last three years?

49%

57%

51%

43%2003

2004

Yes No

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Loss recovery

Loss recovery is not common.• every fourth respondent declared not to have recovered any losses due to fraud;• every third respondent believes that less than 25% of losses have been recovered;• only 15% of respondents declared to have recovered more than 50% of the incurred losses.

Responses of the surveyed who encountered fraud in the course

of their business activity over the last three years

What percentage of losses resullting from fraud has your company recovered over the past three years?

11%

10%

14%

16%25%

26%

34%

38%

10%

7% 4%

5%

2003

2004

No losses were recovered Below 25% 26% - 50% 51%-75% Over 75% Do not know

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Regulations

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Are Polish regulations sufficient to truly prevent fraud?

Polish regulations are not sufficient to truly prevent fraud.

Are Polish regulations sufficient to truly prevent fraud?

3%

5%

19%

18% 35%

36% 40%

39% 3%

2%2003

2004

definitely yes rather yes rather no definitely no hard to say

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Is Polish justice system effective enough in fighting fraud?

The prevailing opinion is that Polish law enforcement bodies (police and Public Prosecutor’s office) do not have sufficient means to fight fraud.

I s Polish justice system effective enough in fighting fraud?

1%

1%

2%

2% 24%

26% 68%

72% 1%

3%

2003

2004

definitely yes rather yes rather no definitely no hard to say

Accession to EU vs. level of fraud in Polish companies

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Consequences of Poland’s accession to the European Union

The situation has not changed after Poland’s accession to the European Union (75%).

Any potential changes would be positive.

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Consequences of Poland’s accession to the European Union (cont’d)

Threats:

•computer crime,

•money laundering,

•organized crime.

Fraud prevention

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

How can we help (1) ?

Identification of risk areas

Understanding and estimating risk scale

Creating risk managementstrategy

Implementing strategy andassigning responsibilities

Introducing and monitoringcontrols

Forming risk management groupand setting goals

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

3. Investigation

2. Detection

1. P

reve

ntion

How can we help (2) ?

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Why Deloitte?

Our Forensic Services Team– scope of activities:

• Fraud investigation services.

• Tracking lost assets.

• Litigation assistance.

• Potential fraud reviews (including DTective – a Deloitte methodology).

• Assistance in development and implementation of fraud prevention policies and

procedures.

• Verification of procedure and policy compliance within money laundering

prevention.

• Business investigative services.

• Recovery of lost computer data.

Fraud – report presentation© 2005 Deloitte & Touche Sp. z o.o.

Contact

Maria Rzepnikowska

Partner

E-mail: mrzepnikowska@deloitteCE.com

Tel: 22 511 08 03

Fax: 22 511 08 13

www.deloitte.com/pl

Deloitte

ul. Fredry 6

00-097 Warszawa

Deloitte & Touche Sp. z o.o.Member ofDeloitte Touche Tohmatsu