Category Archives: Governance, Risk & Compliance

Who’s Committing Economic Crime?

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According to a recent survey from PricewaterhouseCoopers, economic crime is on the rise, particularly in the United States. Of organizations in the U.S., 45% suffered from some type of fraud in the past two years, compared to the global average of 37%. Further, 23% of companies that reported economic crime experienced accounting fraud, up from 16% in 2011.

So who is committing these crimes?

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External perpetrators are on the rise, closing the gap with internal perpetrators — it’s now 45% versus 50%, respectively. But the profile of these internal actors has changed since the last survey in 2011.

Now, most internal frauds are perpetrated by middle management (54%, compared to 45% in 2011), and fraud by junior staff has dropped by almost half, now totaling 31%.

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The typical internal fraudster is now a white male in middle management, age 31-40, who has been with the company for six years or more.

Internal Fraudster Profile

In good news, PwC also found that awareness of risk is higher among U.S. companies, for example, seven out of 10 American respondents perceived an increased risk of cybercrime in the last two years, compared to just under half globally. The C-suite is also increasingly getting the message about the risk of economic crime:

C-Suite and Economic Crime

For more details on the 2014 Global Economic Crime Survey, check out the report from PwC here.

Trends and Predictions for Retailers

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Last year, retail and consumer packaged goods (CPG) companies faced challenges stemming from evolving regulatory compliance, brand exposure, reputational risk and increasingly complex global supply chains. No doubt 2014 will prove to be a pivotal year for organizations to demonstrate their focus and commitment to strong governance, risk management, and compliance in order to truly emerge as leaders. Here is a look at some top trends that have influenced the industry, and a few predictions that will shape the year ahead.

2013 Key Trends:

Increased Volume and Complexity of Regulations. In 2013, the retail/CPG industry faced a flurry of new and amended regulations spanning environmental compliance, conflict minerals reporting, product safety, data privacy, anti-corruption, product packaging and labeling to name a few.

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Ensuring compliance and staying one step ahead of regulators requires that retail and CPG organizations establish more centralized and collaborative compliance programs.

Managing the Supplier Ecosystem. We saw that environmental, man-made, and human rights issues can threaten the financial stability and reputation of retail and CPG organizations. Establishing a unified view of the organization and its entire supplier ecosystem requires consistency and transparency, which can be achieved only through stronger due diligence, monitoring, and reporting processes.

Focus on Collaboration. In response to increased compliance mandates, and added complexity throughout the supply chain, internal business functions have begun converging and collaborating in new ways. A strong, compliant, and risk-aware organization brings together the right people, the right skill sets, and necessary resources against a shared vision, mission, and purpose.

2014 Predictions:

Rising Importance of Reputation. Non-compliance, fines, product recalls, bribery and corruption allegations, customer activism, factory fires, and health and safety issues have put many retail and CPG companies in the hot seat.

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These incidents not only play out over front-page headlines, but can spread virally across social media sites in a matter of minutes. In 2014, building and maintaining an organization’s reputation will become a matter of survival.

Complying with the Affordable Care Act (ACA). The ACA impacts retail companies that employ a significant number of temporary workers. According to the ACA, health insurance must be provided to full time employees who work at least 30 hours per week. In the retail industry, however, employees who work at least 40 hours per week have traditionally been considered full-time. Overcoming this discrepancy will require new policies and processes that will impact employees, human resources teams, and compliance executives alike.

Investments in Technology. As operations expand and supplier ecosystems become more diverse, organizations will be faced with new opportunities and new challenges. We will see organizations continue to focus on integrating the activities of multiple functions.

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Investing in new technologies and tools to help integrate quality customer service, regulatory compliance, supply chain governance and security can help organizations realize greater efficiencies, enhanced agility and improved business performance.

U.S. Fraud Up, Prevention Down

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Although fraud has increased for U.S. organizations in the past two years—45% of U.S. organizations experienced fraud, compared to a global average of 37%—companies are doing less to prevent fraud than in 2011, according to a survey by PricewaterhouseCoopers.

The Global Economic Crime Survey 2014 found that the less proactive approach was consistent with the upward trend in economic crime in most fraud categories since 2011. Slightly more than half (53%) of organizations performed fraud risk assessments annually or more often, a significant drop from 70% of organizations that performed fraud risk assessments annually or more in 2011.

The report also found that the most serious economic crime experienced by U.S. respondents within the past 24 months was more likely committed internally (50%) than externally, (44%), but that external fraudsters are closing the gap. This trend is consistent with more organizations engaging in business opportunities in high-risk markets.

“The United States has proved to be fertile ground for domestic economic crime in recent years. Catastrophic coastal events on the Eastern and Gulf coasts have generated rampant insurance fraud that squanders taxpayer dollars and undermines community relief and reconstruction efforts. Farther inland, natural gas exploration and fracking have led to boom towns sprouting overnight in places like North Dakota, Wyoming, Utah, and Texas. Many of these towns do not have the infrastructure or governance capability to handle the influx of people, and crime, that inevitably accompany boom-town dynamics.

Land lease and mineral rights agreements, zoning ordinances, permits, and licenses have become particularly vulnerable to exploitation.” PwC Global Economic Crime Survey 2014

According to the report:

• More than half of U.S. organizations that experienced fraud in the past two years reported increased occurrences.

• 67% of U.S. respondents said their organizations now have, or plan to have operations in high-risk markets, compared to only 58% of global respondents.

• 57% of U.S. respondents said their organizations pursued opportunities in markets with high-levels of corruption risk within the past 24 months, versus 38% of global respondents.

Fraud levels are climbing:

• 24% of U.S. organizations that reported economic crime experienced accounting fraud in 2009. While this dropped to 16% in 2011, accounting fraud increased to 23% in 2014.

• In 2014, bribery and corruption doubled from 2011 levels of 7%, after dropping by more than a half, to 16% since 2009 PwC said.

GRC and Risk Management

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Risk management is the most important part of an organization’s governance, risk and compliance program (GRC), according to a survey. When asked to forecast priorities, 33% of respondents stated that enterprise risk management is most important and 27% said ERM would continue to be important to their company. Out of 12 barriers to their GRC goals, organizations identified a lack of resources (52%) and lack of collaboration and cooperation (44%) as their top obstacles.

 

GRC Software | ERM Software
Courtesy of: CAREWeb