Survey suggests that fraud, corruption play growing role in business

Photo: Liis Treimann

On a global basis, 57 percent of managers interviewed by Ernst & Young for its Global Fraud Survey reported that bribery or corrupt practices occur frequently in their countries.

The ratio of such managers in the Baltic countries was 47 percent.

"Given today's complex market conditions, businesses are under constant pressure to meet expectations concerning growth and profit, which creates a favorable ground for fraud," Ernst & Young Baltic AS board member Ivar Kiigemagi said. "If last year 39 percent of respondents found that corruption and bribes have become usual, then this year already 57 percent of all respondents think so. It also appears from the survey that a number of respondents are in a phase of denial as regards corruption, that is, they do not want to admit how close it actually is to them."

Just like companies elsewhere in the world, Baltic businesses are under great pressure to improve their performance results, which has forced many companies to cut simultaneously wages and bonuses and which in turn may lead workers to activities related to fraud. "Over the past year 32 percent of companies in the Baltics have frozen wages and 24 percent discontinued the payment of bonuses, which is significantly more than elsewhere in the world. Because of that communicating the organization's ethical principles, evaluation of the functioning of internal control and implementation of measures to prevent fraud emerge as more important still," Kiigemagi said.

"If last year only four percent of entrepreneurs in the Baltics were ready to offer a bribe to spur business, then this year that ratio has risen to 19 percent. This suggests that managers of businesses have come directly in touch with that subject," said Marilin Pikaro, investigator of financial fraud at Ernst & Young.

In the Baltic countries, compared with Western Europe, one continues to pay less attention to the setting out of anti-fraud guidelines and rules, punishing perpetrators and training of employees on matters related to the risk of fraud, Pikaro said.

"Even though according to Justice Ministry data the share of recorded economic and office related crimes is on the decline in Estonia, that trend may not be sustainable given the outcome of the survey. In addition Estonian entrepreneurs are increasingly active searching for solutions to curb risks arising from business activity without turning to law enforcement agencies," said Pikaro.

While a large portion of respondents are aware that anti-fraud measures are being implemented, authors of the survey are concerned that perceptions of the measures are contradictory on different levels of a business. "Compared with 60 percent of top and mid-level managers who found that their company rewards a worker for informing about a case of corruption or bribery, only 34 percent of workers on the lower level agreed with that," Kiigemagi said.

Pikaro said the main reason why fraud prevention strategies and guidelines were secondary for business in the Baltics was the management's focus on expansion.

In all approximately 3,000 middle and top level managers from 36 countries took part in Ernst & Young's 2013 Fraud Survey, titled Navigating Today's Complex Business Risks.