A new survey by assurance, tax, transaction and advisory services company Ernst & Young (E&Y) has found that an alarming number of management and employees are turning a blind eye to the risks of inaccurate or manipulated financial reports and unethical behaviour as pressures to perform weigh on companies.
The ‘2013 Europe, Middle East, India and Africa (EMEIA) Fraud Survey: Navigating today’s complex business risks’ showed that one in five employees surveyed were aware of financial manipulation within their own company over the last year.
About 40% of the management and board members surveyed were aware of some type of irregular financial reporting at their respective firms.
The survey also reported that 38% of the overall respondents – and 45% in rapid-growth countries – believed companies within their country overstate their financial performance.
Thirty-five per cent of South African respondents believed this occurred.
E&Y commented that several employees appeared to be comfortable with or aware of unethical conduct, including recording revenues early, underreporting costs or encouraging customers to buy unnecessary stock, driven by pressure to deliver unrealistic results in difficult markets or a desire for increased personal recognition and reward.
“Given the current challenging market conditions, companies face sustained pressure to meet growth and profit expectations. In this environment, some inevitably succumb to unethical behaviour,” stated E&Y fraud investigation and dispute services practice global leader David Stulb.
A higher number of respondents in rapid-growth regions than in the developed regions such as Western Europe, believed that misrepresentation, unethical business practices and financial manipulation, such as overstated sales and understated costs were commonplace.
Meanwhile, although a high number of respondents believed there was a high incidence of bribery and corruption in their countries, and noting awareness of unethical behaviour within their own companies, many denied that it was a risk to their own business.
Fifty-seven per cent of all respondents believed that bribery and corruption was widespread in their country – 67% in rapid-growth markets – but only 26% reported that it was “common to use bribery to win contracts in their own sector”.
In South Africa, 65% of those surveyed said bribery and corruption was widespread, but only 19% believed bribery was common practice in their sector to secure a contract.
“The survey reveals a worrying trend that employees see bribery and corruption happening widely in their country but do not acknowledge it as a risk in their own business or sector. The results seem to say: Everyone else is doing it, but not me or my business,” Stulb commented.
There was also a misalignment between management and other employees, with 60% of directors and senior managers believing that their company would support people reporting cases of suspected fraud, bribery or corruption, but only 34% of other employees agreeing with this.
“While companies are focused on cost, compliance can be an afterthought for some organisations. Many incorrectly assume that the mere existence of an antibribery programme is sufficient to mitigate their risk,” he said.