White collar crime is on the rise
Source: The Budapest Sun Online
Date: October 16, 2003
Economic crime hit 39% of Hungarian companies last year, up from 27% two years ago, with larger firms more likely to be affected, according to a recent study by PricewaterhouseCoopers (PwC), the international professional services firm.
The level of reported economic crime - mostly, but not entirely, equivalent to so-called "white collar crime" - represents a "significant problem" in Hungary, where it is higher than in Western Europe (34%) and in the rest of the world, including Central and Eastern Europe (37%), Roger Stanley, head of PwC's regional investigations and forensic audit services told the media last week.
However, the figures should not necessarily be taken to mean economic crime in Hungary is necessarily increasing, Stanley cautioned.
"The amount of fraud depends on the ability to detect and report it. The higher figures may be due to an actual increase, but it could also be attributed to a greater awareness, improved control mechanisms, or more successful detection techniques," he said.
Nonetheless, Stanley said that PwC was strengthening its teams dedicated to forensic accounting in Hungary and elsewhere in the region, particularly in view of European Union accession, when controls are expected to become more stringent.
"62% of respondents believe joining the EU will see a reduction in economic crime. However, better preventative measures and detection techniques may mean the level of reported crime may rise," he said.
To some extent the data it is also highly dependent on respondents willingness to admit there is a problem.
"There are some surprising countries where economic crime is apparently non-existent, including Russia and Turkey," he said.
PwC surveyed a total of 3,600 companies world-wide for the survey, of which almost 400 were in central Europe, including 108 from Hungary.
The average cost of economic crime per company around the globe was $2.2 million. In Hungary, 7% of the companies surveyed reported loses in excess of $1 million.
Among the categories of economic crime, "asset misappropriation" - essentially theft - accounted for just over half reported incidence in Hungary. This compared to 65% of cases in Western Europe.
"This is not a surprise. It's basically the easiest to detect and quantify, but it shows where management should focus for the most immediate results," Stanley said.
Moreover, since in Hungary the role of accident in discovery of crimes was 53%, far higher than in Western Europe (34%), it was quite likely that much theft went undetected, he said.
Next on the list in Hungary was industrial espionage, with 30% of respondents suffering from some kind of loss of secrets last year.
Product piracy and cybercrime hit 18% and 16% of respondents respectively.
Over 58% of Hungarian companies said there was a perceived awareness of corruption impacting adversely on business, yet only 14% actually reported incidences.
PwC put this down to the emphasis on anti-corruption drives by the authorities and media reporting.
"In our experience the real level of corruption is somewhere between the reported and perceived levels.
It's also difficult to detect, and corruption is often seen as a victimless crime.
"This is not true, as it affects profits, and that in turn affects investment decisions by the company and tax revenues in the country concerned," Stanley said.
While fraud clearly impacts on the bottom line, business relationships and reputation, staff morale and brand image are usually damaged by fraud, the report revealed.
Half of all Hungarian corporate managers surveyed said they believed responsibility for white collar crime lay with them, yet only 7% of companies train their managers in crime prevention.
In spite of this, Hungarian companies are increasingly taking corrective measures against crime, with 47% now implementing a corporate code of conduct, and 43% using pre-employment screening when taking on new recruits. However, a mere 7% have special training for management in detecting fraud, against 24% in western Europe.
_ Hungary ranks 40th out of 133 countries in terms of corruption, with the index slipping from 4.9 last year to 4.8 this, according to the latest report by Transparency International.
Although in 33rd place last year, Hungary's slide down the table is mainly due to new countries joining the list.
Central Europe in general fared less favorably that than last year in the rankings. Of EU countries, Greece ranked below Hungary in 44th position.
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