More than a third (37%) of chemical companies have suffered from economic crime, nearly $600,000 per company, according to the latest PricewaterhouseCoopers (PWC) Global Economic Crime Survey of the chemicals industry.
The chemicals industry has experienced a slight reduction in economic crime since the last PWC survey two years ago, with the number of companies reporting such instances dropping three percent, from 40% to 37% percent. However, reports of corruption and bribery more than doubled to almost 30%.
The top five types of economic crimes committed against chemical companies in the past two years, by percentage of respondents reporting such types of incidents, are:
1. Asset misappropriation (fraudulent disbursements, e.g., payments to ghost employees, fictitious vendors, over-billing schemes) - 60%
2. False pretenses (deceiving others in order to obtain financial gain) - 35%
3. Corruption and bribery - 28%
4. Counterfeiting - 24%
5. Financial misrepresentation - 20%
"In the past, many chemicals industry executives were under the misconception that fraud 'can't happen here in my company'," said Saverio Fato, Global Chemicals leader for PricewaterhouseCoopers. "Recently, however, the chemicals industry has seen signs of a culture shift; understanding that fraud does indeed happen, and that its results have the potential to damage a company's financial well being, competitive advantage, employee morale and vendor/supplier relationships."
In many cases, the impact of fraud in the chemicals industry has broader consequences than just financial loss. For example, a company can be put at a significant disadvantage if competitors are able to replicate a patented process because sensitive data such as production methods or formulas are compromised.
Economic crime remains difficult to detect. Although most companies report a very high level of satisfaction with their various fraud detection measures, more than 43% of frauds in the chemicals industry are still detected by chance (e.g., through tip-offs or by accident). Internal auditors also uncovered a number of frauds (26%), indicating that companies should ensure that their internal audit departments have comprehensive fraud awareness training.
"Fraud is being recognized and reported more and more often, but some chemical companies have a false sense of security when it comes to economic crime," concluded Claudia Nestler, partner and Global Economic Crime Survey leader for PricewaterhouseCoopers. "Only 17% of respondents feel their organization is likely or very likely to suffer from economic crime in the next five years. Progress to tighten internal controls and develop codes of conduct has been made but many chemical companies need to do more to implement concrete fraud prevention measures such as comprehensive fraud awareness training."A copy of the Global Economic Crime Survey of the chemicals industry is available at http://www.pwc.com/chemicals.