July 9, 2003 by Canadian Underwriter
Despite almost half of Canadian companies reporting themselves a victim of economic crime, most feel they are well prepared to deal with the problem.
In a study by Pricewaterhouse Coopers, 50% of Canadian companies say they have been a victim of economic crime in the past two years. However, 60% say they are confident in their existing control systems as a means to minimize loss.
Insurance figures heavily in the scenario, with 86% of Canadian companies reporting they have coverage for economic crime losses. This is well above the global average.
In terms of risk control, 40% of Canadian companies say they have whistleblowing programs, and two-thirds have pre-employment screening, both higher than the global norm.
However, Canada and the U.S. tied for the second-highest instance of economic crime, behind Africa. And about one-fifth of fraudulent acts are uncovered by chance here. “Moreover, there will be frauds that organizations never uncover and others that are treated as commercial losses,” says Steven Henderson, partner in PwC’s Canadian investigations and forensic services practice.
There was some disconnect between actual reported incidents and the perception of which economic crimes were most prevalent. In Canada, financial misrepresentation was seen as widespread, when in fact it accounts for only 5% of reported incidents. This may be due to the publicity surrounding corporate governance scandals in North America, says Henderson. The most common crime was asset misappropriation.
Canadian companies expect fraud to increase over the next five years, and that asset misappropriation will continue to be the greatest threat.
In terms of damage, companies say the greatest harm is to staff morale and motivation rather than to share price. And economic losses are not easily recovered, with only 10% of companies recovering 80% or more of their losses.