ALMOST one-third of Slovak companies have been the victim of some kind of economic crime over the past two years. And while most firms assume their control mechanisms work perfectly, 67 percent of all the cases were uncovered by accident or through internal whistle-blowing, a recent study suggests.
The global economic survey for 2007 from PricewaterhouseCoopers (PwC) found that economic crime was reported less often in Slovak companies than the world average.
The report polled 78 Slovak companies and found that 32 percent had been hit by economic crime. The global average was 43 percent, and the EU average was 50 percent. The Czech Republic's rate was almost double Slovakia's, with 61 percent.
Slovak firms also reported substantially lower average financial losses from economic crimes, at about $127,000 (Sk2.9 million or €89,000). The average loss for firms worldwide was $2.4 million, and in the Czech Republic it was $1.7 million, the survey showed.
The survey polled 5,400 companies around the world, in cooperation with Germany's Martin Luther University. It focused on different forms of economic crimes: fraud, accounting fraud, corruption and bribery, money laundering, copyright violations and other types of crime.
Companies have been admitting to a very small amount of sophisticated crimes, such as accounting fraud.
"It is possible that many crimes that are more sophisticated have not been revealed yet," said Jan Vylita, director of PwC Forensic Services.
At first glance, it might seem that economic crime is not such a serious problem in Slovakia. But the relatively low number of frauds might be a result of the lack of awareness of the danger of economic crimes, and a low number of reported crimes.
"The number is below average. Why?" asked Vylita. "We think that some cases, even those involving management, have not been revealed. That could be the reason why many of them do not acknowledge this."
He compared the results for Slovakia, which was included in this survey for the first time, with past results in the Czech Republic.
"In the first survey where the Czech Republic was included, in 2003, only 27 percent of the firms that were surveyed said they were victims of economic crimes," Vylita said.
But in the next survey, in 2005, the percentage in the Czech Republic jumped to 63 percent, he added.
Jaroslav Ivor, a former chief police investigator and dean of the Faculty of Law at the Bratislava School of Law, also assumes that the crime rate is probably much higher than the survey indicated.
"When firms reveal a problem with one of their employees, they often want to have it solved internally within the firm's authority, and they do not make the case public," Ivor told The Slovak Spectator. "They simply do not want to damage their credibility in relation to other firms by showing that they employed criminals."
It could also be that they have had negative experiences with the police or the prosecution bodies, and they do not want the police to go into their firms, Ivor said.
Most of the frauds that the Slovak firms listed involve small-scale property fraud, mostly committed by temporary employees, Vylita said. Twenty-three percent of firms reported property fraud.
No business sector is immune to fraud, according to the PwC survey. However, the insurance and retail sectors are most frequently hit, with 57 percent of the companies admitting it in the survey.
The state and public sector followed with 54 percent, then the financial services sector with 46 percent, and the car industry with 44 percent.
Police stats show more crime
The number of economic crimes police have investigated, according to crime statistics, is much higher than the number reported by the affected organisations, Ivor said.
In 2006, police uncovered 19,168 economic crimes, 77 fewer than in 2005, according to figures provided by Slovak Police spokesman Martin Korch to The Slovak Spectator.
The most frequent crimes were loan frauds, with 6,297 cases. There were 1,689 cases of tax evasion.
There has also been a growing trend in crimes against economic competition, copyright violations, and illegal production and distribution of pirated CDs, DVDs and computer software, according to police statistics.
Ivor said a more in-depth survey, exploring why firms take certain approaches towards economic crimes, would be helpful.
"One of the factors influencing a firm's approach could be whether they are satisfied with the law's enforceability - what kind of experiences they have had with reporting crimes to the police and whether they meet with the desired effect, in terms of penalising the employee or getting reimbursed for the damages," Ivor told The Slovak Spectator.
After property fraud, the second most common crime was identified as corruption and bribery, with 13 percent of the firms reporting it, the survey said.
Thirty percent of the companies in Slovakia saw corruption as the most common type of economic crime, and 36 percent said they have lost orders and business because their competition used bribery. Over the past two years, 22 percent of the companies in Slovakia were asked to give bribes, the survey said.
More precautions needed
Economic crimes are getting more sophisticated and they will likely never be stopped completely, experts say. But companies should be more careful and monitor the risky areas.
The surveyed companies were convinced that their control mechanisms do not have weaknesses and they work well. However, only 18 percent of all the cases were caught by control mechanisms, according to PwC.
"Though the companies have installed control mechanisms, it seems that these are not effective enough," Vylita said.
More alarming is that only five percent of the Slovak firms expect they could be hit by economic crime over the next two years, he said.
Economic crimes cannot be weeded out completely, said Steven Skalak, head of global forensic services at PwC.
"It is like fighting with the mythical hydra," Skalak said - by making it harder to commit one kind of fraud, it creates openings for other kinds of crime.
In Slovakia, 44 percent of the surveyed firms said the lack of internal controls motivates people to commit fraud, while others listed the lack of loyalty (55 percent) and unclear ethical codes (35 percent).
The typical economic criminal is a university-educated man: 86 percent of the economic crimes were committed by males and 63 percent of them had a university education. Seventy percent of the criminals were employed with the company for less than two years.
In Slovakia, only 27 percent of the criminals came from the top management, while in Central and Eastern Europe this number is 38 percent, the survey said.
Of the firms that admitted some kind of economic crime, 80 percent said that the fraud damaged their brand, influenced the morale of employees, and disturbed their relationship with other companies.
PwC advises companies to evaluate the real risks of economic crimes within their companies, and proactively monitor risky areas.
A high number of respondents, 79 percent, said that they have failed to collect any kind of reimbursement for the damages. That might be linked to the fact that 78 percent of the companies in Slovakia are not insured against losses and expenses linked to economic crime, according to the PwC survey.
22. Oct 2007 at 0:00 | Beata Balogová and Marta Ďurianová