U.S. Businesses Discover Less Fraud Through Internal Efforts

magnifyingCorporations have put millions of dollars into compliance programs in order to detect fraud and employee misconduct internally. A new survey from PricewaterhouseCoopers, however, provides some statistics calling into question the results of those efforts. U.S. organizations learned of 32 percent of fraud by external measures or accident in the past two years, according to the US Supplement to PwC’s 2014 Global Economic Crime Survey. The number is up sharply from the 2011 report, when 85 percent of fraud was discovered through internal mechanisms.

The trend may have been strengthened by government whistleblower programs. The PwC survey also provided an early look into the effect of Dodd-Frank on internal whistleblower reports, which began in 2011. “Since 2011, there has been an observed inverse relationship between whistle-blowers and law enforcement; fraud being reported by whistle-blowing declined whereas fraud being reported to law enforcement has increased.” Incentives from the government may have led employees to forgo internal reporting, according to PwC.

The survey doesn’t attempt to reconcile its conclusion with the evidence found in the National Business Ethics Survey (NBES). It found most employees still attempt internal reporting first. According to the NBES, “only 20 percent of reporters ever choose to tell someone outside of their company, the same percentage as in NBES 2011.”

Also in contrast to the NBES, which reported fraud at historic lows, the PwC survey found fraud increasing at those U.S. organizations reporting fraud. The two areas where the survey revealed fraud growth were accounting fraud and bribery/corruption. PwC assigned the blame for rising corruption on U.S. organizations expanding internationally into high-risk countries in order to pursue economic opportunities. The growth in these two areas provides further support for the prospect of growth in investigations and enforcement under the Foreign Corrupt Practices Act in 2014.

McEldrew Young represents whistleblowers reporting to the DOJ, IRS, SEC and CFTC through their whistleblower programs and the False Claims Act. If you would like a free, confidential consultation with Eric Young or another attorney regarding a potential claim, please call 1-800-590-4116 or fill out our contact form.

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