Control and prevention to protect against crime are scarce

Between the spring of 2005 and 2007, around 56 percent of trading companies and consumer goods manufacturers in Germany suffered damage from fraud, embezzlement, product piracy, corruption and other offences. A study by PricewaterhouseCoopers takes stock.

As the consultants show in their study “White-collar crime 2008 in retail and consumer goods industry – German companies underestimate risks”, German retailers and consumer goods manufacturers are affected twice as often as foreign competitors with an average of twelve individual crimes per company. The uncovered criminal offenses alone caused damage of around 1.35 billion euros per year in the German retail and consumer goods industry, the total damage per company amounted to over one million euros on average.

“However, these sums should only cover part of the losses from white-collar crime. German trading companies and consumer goods manufacturers have much fewer systematic control mechanisms than foreign competitors and domestic companies in other sectors,” explains Gerd Bovensiepen, Partner at PwC and Head of the Competence Center Retail & Consumer.

Three out of four of the companies surveyed discovered white-collar crimes more or less by accident, for example through tips from employees or business partners. On the other hand, 7 percent of the victims were found to have committed criminal offenses during internal audit checks. “This value is exceptionally low compared to other industries. On average, internal audit uncovers white-collar crimes at 15 percent of companies in Germany,” comments Steffen Salvenmoser, partner at PwC in the area of ​​forensic accounting services and a former public prosecutor.

For the study, PWC surveyed 5,428 companies worldwide as part of the “Global Economic Crime Survey 2007”, including 371 companies from the retail and consumer goods sector, 89 of them from Germany. The survey included all crimes discovered between spring 2005 and 2007. More than half (55 percent) of the German retailers and consumer goods manufacturers surveyed employed fewer than 200 people, and 35 percent fewer than 1,000.

Fraud and embezzlement are the most common crimes in the retail and consumer goods industries. Almost every second company (45 percent) was affected by these offenses several times. Nevertheless, almost every third company in the industry does not want to take any new protective measures against fraud and embezzlement. The retail and consumer goods companies surveyed are therefore much more carefree than their competitors abroad. In Western Europe, only 25 percent of companies consider their defenses adequate, compared to just 11 percent in North America.

Product piracy and industrial espionage hit German retail and consumer goods companies more often than average in an international comparison. A good one in four companies (27 percent) uncovered at least one crime of this type between spring 2005 and 2007; in Western Europe only 17 percent and worldwide 18 percent of companies in the sector did so. Only 14 percent of the companies surveyed consider it likely that they will be harmed by product piracy or industrial espionage in the next two years. Accordingly, almost 60 percent consider their existing defensive measures in Germany to be sufficient.

The experts also attribute the low priority given to defense against product piracy and industrial espionage to the initially small amount of damage. The companies put the average loss at 232,000 euros, but in every tenth case the amount of damage was between one and ten million euros. “A single case of damage can endanger the existence of the typical medium-sized companies. In addition, it is easy to overlook the fact that these offenses cause indirect damage to the brand and other values ​​of the company,” explains Bovensiepen.

Around every twelfth company (8 percent) in the German retail and consumer goods industry has uncovered one or more cases of corruption in the past two years. However, 17 percent of respondents said they had been in a situation where they felt a bribe was expected to be paid. As in other sectors, most perpetrators in the retail and consumer goods sector come from the companies affected themselves. In almost four out of ten respondents, the crimes discovered were committed by employees, and in another 10 percent employees were significantly involved in the crimes.

Of the industry companies in Germany, 18 percent have a compliance program for monitoring and enforcing rules, and 37 percent of companies across all sectors in Germany have a corresponding set of rules. 11 percent of retail and consumer goods companies (all companies in Germany: 22 percent) have a hotline for reporting criminal offenses, and 31 percent (all companies in Germany: 45 percent) of those surveyed have systematic risk management in place.

www.de.pwc.com