Press conference “Fraud in Ukrainian companies. Current situation. Counteraction mechanisms”
Kreston GCG presented the results of an independent study on dissemination of fraud in Ukrainian companies, the ongoing perception of the problem, and measures taken to counter and prevent the fraudulent schemes in companies.
The event was held at the Press Center of LIGABusinessInform, an informational agency.
The key objective of this project was to assess the perception of fraud and its distribution in Ukrainian companies. “We wanted to understand how the problem is perceived by companies from various sectors and industries, and see what measures do these companies now take to prevent the fraud”, – said the Marketing Research Lead of Kreston GCG, Olha Kabachna.
The study participants comprised 130 international, national and regional companies throughout Ukraine with the leaders from agricultural, pharmaceutical and manufacturing industries among them.
Nearly 70% of the respondents were CFOs and CEOs. According to the study, 60% of the companies had encountered fraudulent activities, one-third of them – within the last three years. 40% of the companies claimed they had never subjected to fraud. However, Olha Kabachna noted that it was likely that those 40% simply had not detected such cases. Trade and industrial production are the most susceptible to fraud. In most cases, the Ukrainian business is confronted with such machinations as embezzlement and unreasonable/inappropriate expenditure.
These fraud types are the companies’ greatest concern in terms of their possible occurrence. At the department level, the most vulnerable to fraud are the sales departments (41.8%), procurement departments (35.8%) and the production department (34.3%). At the same time, the financial department is the most vulnerable one globally.
The results of the study showed that the most popular fraud counteraction mechanism is a constant internal oversight by the top and middle management. 55.1% of the companies called this very mechanism as the most efficient one. Only 17.1% of the study participants engaged the external consulting to prevent fraud.
Among the companies that did not resort to an external investigation, 40.8% of them claimed they did not consider an external control necessary, 28.2% were confident of the internal oversight efficiency, and 31% could not provide a reason as to why they did not approach external consultants.
According to Sviatoslav Yefremov, a Partner at Kreston GCG, international studies show that a classic corporate fraudster is a person working in the company for over 3-5 years. “As a rule, a typical fraudster is not a new hire. It is a person who has already worked for some time, learned the ropes, understood his value for the company and decided to convert it to personal benefit”, — said Mr. Yefremov.
According to Artem Kovbel, the Head of Financial Investigations at Kreston GCG, large amounts of cash stimulate the fraudulent activities at enterprises. “Owners should fight cash transactions, eliminate them as much as they can and convert everything into the non-cash environment” — he said. As Mr. Kovbel noted, financial investigations are among the most effective tools to counteract the fraud. This mechanism included an analysis of the company’s internal control systems for fraud risks, as well as an environmental analysis (counterparties, partners, etc.).
The Head of Financial Investigations at Kreston GCG told us that their investigations utilize three examination methods – a direct method (company management is aware of an external examination initiated by the owner), spontaneous method (a sudden examination under the program previously agreed with the owner) and legendized method (investigation representative gets planted in the company for some time to collect information).
In conclusion, Mr. Kovbel added: “fraud cannot be eradicated completely, but it can be minimized and prevented”.