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European firms play dirty as competition intensifies

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19th May 2009
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Unethical business behaviour is on the rise as firms struggle to fight off the effects of the recession, according to new research by Ernst & Young.

The Ernst & Young fraud survey revealed that 25% of employees found it acceptable to give a cash bribe in order to win work. This figure rose as high as 38% in Spain, 43% in the Czech Republic and 53% in Turkey, compared to 14% in the UK.

Among senior managers, 13% believed that distorting their company’s financial performance figures was justifiable in the current economic climate.

More than 2,200 employees of major firms in 22 European countries were questioned during the study, and 55% admitted that they expected corporate fraud to increase over the next five years.

“In the current climate, management are under incredible pressure to stabilise their businesses and meet financial targets, both at a personal and organisational level”, said John Smart of Ernst & Young’s UK Fraud Investigation and Dispute Service.

Causes
The survey asserted that where companies were making redundancies or undergoing changes in ownership, gaps were appearing in financial controls; 30% of UK respondents believed that normal policies and procedures are likely to be overlooked as staff redundancies are made.

In the case of mergers, 40% of UK respondents felt that differing standards of behaviour held by the two companies involved often posed a major challenge to anti-fraud efforts.

Another key finding of the survey was that employees believed management are at the root of the problem. In the UK, 70% of respondents agreed that management is likely to cut corners in the downturn, while 67% of all respondents said they had cause to doubt the integrity of their company’s management.

“Worryingly, the senior management of the population that we surveyed are more likely to condone bribery and financial statement fraud than those of junior rank. Indeed, our interaction with regulators suggests that they are very conscious of the shortcomings in corporate governance and are positioning themselves for much more aggressive enforcement action”, said Smart.

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