Fraud survey report for Romania 2015

Fraud and corruption – the easy option for growth?

Europe, Middle East, India and Africa Fraud

Survey – findings for Romania

EY Romania, June 2015

Survey approach and participant profile

► Between December 2014 and January 2015, our researchers conducted 3,800 interviews with

employees in 38 countries, covering Europe, Middle East, India and Africa.

► A sample of the largest companies1 in each country was interviewed. Employees interviewed

included board directors, senior management, other management and other employees. Interviews

were conducted on an anonymous basis in the local language online or in person.

► Details of the full survey are shown below:

No. of employees globally % of respondents

Above 5,000 51

1,500 – 4,999 21

1,000 – 1,499 11

500 – 999 10

Less than 500 7

Role in organization % of respondents

Board director 1

Senior management 8

Other management 25

Other employee 63

Other 4

1 Large companies are defined as those having more than 150/250/500/1,000/1,500 employees globally depending on the country, and/or that is quoted on a stock

exchange/is a multi-national. 2 Eastern Europe results are based on 1400 interviews across 14 countries – Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia,

Serbia, Slovakia, Slovenia, Turkey, Ukraine. 3 Developed results are based on 1,600 interviews across 16 countries – Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands,

Norway, Portugal, Spain, Sweden, Switzerland and UK. 4 Rapid-growth results are based on 1,100 interviews across 11 countries – Czech Republic, Egypt, India, Nigeria, Poland, Russia, Saudi Arabia, South Africa, Turkey,

UAE and Ukraine.

Page 2

Survey General Findings

For many businesses, optimism arising from economic recovery has been overshadowed by the negative effects of

volatility and uncertainty. For many companies, increased pressure on margins and balance sheets has resulted

from:

► A collapsed oil price

► Geopolitical factors, including economic sanctions

► Continued concerns over the stability of the Eurozone

Our survey shows that, for a majority of respondents, economic growth has been slower than expected. Almost 60%

of respondents identify this slower-than-expected rate as challenging their specific business’s growth or success.

Volatility – a driver of corruption?

Slower-than-expected economic growth

58%

32%

24% Uncertainty about our ability to

trade due to economic

sanctions or export controls

Political instability in some of

the countries we trade in

Q: Are any of the following increasing the challenges for the growth or success of your business?

Base: All respondents (3,800); Developed (1,600); Rapid-growth (1,100)

% applies

Developed Rapid-growth

54 62

25 41

20 30

Slower economic growth than

expected in our country

Page 4

Volatility – a driver of corruption? (cont.)

61% of respondents in rapid-growth markets

believe corruption is widespread.

37% of respondents agree that companies often

overstate their financial performance.

► Bribery and corruption remains a significant risk, especially in rapid-growth markets.

► Fraud is an ongoing challenge - and cost pressures are coming from all directions.

Page 5

Volatility – a driver of corruption? (cont.)

Page 6

There are differences in

the ways in which fraud

and corruption risks

manifest themselves in

different countries.

Businesses need to

understand these

nuances in order to

implement effective

integrity and compliance

programs.

Does compliance enable growth?

Results from businesses with increased revenues vs businesses with decreased revenues

Rate their company’s ethical standards

when doing business as “very good”

31% vs. 18% Agree that unethical practices often go

unnoticed by head office

19% vs. 28% Agree that regulatory activity has had a

positive impact on ethical standards

30% vs. 14%

Page 7

The results show that businesses that have experienced revenue growth in the last two years are more likely to be

seen as ethical by their employees, not only at head office but also across operations in different countries.

Are confident business operations in different

countries meet the same ethical standards

62% vs. 41% Say that ethical standards have got better in

the last two years

43% vs. 20% Agree that regulatory activity has had a

positive impact on company results

26% vs. 8%

Financial services – under pressure from all sides

73% vs. 62% agree management will be under increased pressure

to deliver good financial performance over the next 12

months.

69% vs. 44% say regulation in the sector has increased in the last

two years.

68% vs. 56% agree that slower-than-expected economic growth is a

challenge to the success of their business.

Results from financial services sector respondents vs other sector respondents

Page 8

Financial institutions remain the focus of robust regulatory enforcement. Huge fines continue to be levied against

firms in the sector. Regulation and media scrutiny of the sector remains intense.

Issues of misselling, sanctions breaches and other control failures continue to be uncovered by these organizations.

Investigations of market manipulation, such as LIBOR, and other investigations are putting pressure on businesses,

and emerging risks — such as cyber attacks — are increasing the challenge. Difficulties in managing diverse and

disconnected data globally are also preventing financial services organizations from identifying risks and issues, and

complicate their ability to respond to regulatory inquiries.

In spite of these stress points, businesses in this sector are under intense pressure to grow.

Financial services – under pressure from all sides (cont.)

There are several areas where our results show financial services organizations to be more active than other sectors in

terms of their approach to compliance.

Notwithstanding this higher level of activity, it is clear that there is still more to do. Organizations should assess the cost of

control enhancement programs against the cost of penalties that are being imposed where breaches are identified.

79% vs. 54% Report that their organization has an

ABAC policy and code of conduct

83% vs. 60% Have attended ABAC training

80% vs. 68% Have found ABAC training useful

where they have attended it

88% vs. 74% State their company has a whistle-

blowing hotline

53% vs. 29% Think that a report to the whistle-blowing

hotline will always be followed up

Results from financial services sector respondents vs other sector respondents

Page 9

Financial services respondents show their organizations are taking a range of sector-specific compliance risks seriously,

including money laundering, unauthorized trading and misselling — with senior management paying significant attention

to these issues.

But again, there is more to do. Compliance teams cannot deliver improvements in isolation, so increased emphasis must

be placed on more active senior management involvement.

Financial services – under pressure from all sides (cont.)

Focus on sector-specific issues

10%

11%

16%

12%

4%

8%

7%

8%

22%

23%

25%

30%

52%

42%

37%

28%

Compliance with anti-money

laundering rules

Preventing the misselling of

products to consumers

Providing information for use in

industry benchmarks

Preventing unauthorized trading

Q: Thinking about compliance challenges, how much attention are the senior management of your company

paying to the following areas?

Base: Financial services (520)

The “Don’t know” percentages have been omitted to allow better comparison between the responses given.

Page 10

Basic building blocks – still some way to go

57%

50%

48%

Protecting sustainable business value

Some businesses still appear not to have the building blocks of an integrity and compliance program in place.

► 22% of respondents did not know whether their company had an ABAC policy or not.

► 20% reported that their company did not have an ABAC policy or code of conduct.

Having a policy is one thing. Following it is another. We found that there are still a large number of respondents who view

their ABAC policies as having a detrimental effect on their competitiveness.

Q: For each of the following, please indicate whether it applies, or does not

apply, to your organization, or whether you don’t know?

Base: All respondents (3,800)

We have an ABAC policy and code of

conduct

Senior management has strongly

communicated its commitment to our ABAC

policies

There are clear penalties for breaking our

ABAC policies

Page 11

Policies harming business?

Protecting sustainable business value (cont.)

Q: To what extent do you agree or disagree that if you followed your ABAC policy very closely, it would harm

your competitiveness in your market?

Base: All respondents (3,800); Developed (1,600); Rapid growth (1,100)

The “Don’t know” percentages have been omitted to allow better comparison between the responses given.

14%

16%

15%

21%

21%

19%

34%

30%

33%

12%

9%

12%

11%

6%

8% Total

Developed

Rapid-growth

Page 12

Get with the program – improving the corporate response

Page 13

Leadership engagement is critical

Our results emphasize the point that management has a fundamental role to play in bringing about cultural changes. In

those organizations where respondents rate their ethical standards as “very good,” compared with those who rated their

ethical standards as “poor”, management is clearly engaged.

18%

25%

28%

39%

61%

66%

72%

86%

Respondents who rate their company's ethical standards as very good

Respondents who rate their company's ethical standards as poor

Are confident that head office management

obtains the right level of data to assess the

reliability of their business unit's financial results

Say senior management has strongly

communicated its commitment to ABAC policies

Say that head office management understand the

business environment that they face

Say senior management frequently communicate

about the importance of maintaining high ethical

standards and behaviour when conducting

business

Base: Respondents who rate their company’s ethical standards as very good (999); Respondents who rate their company’s ethical standards as poor

(554)

Senior management engagement key to culture

Page 14

Executive summary - Romania

Senior management engagement

Eastern

Europe Developed Rapid-growth

All

respondents

49 45 52 49

30 28 39 33

42 51 53 50

63 66 72 68

61 65 70 67

42 46 54 49

Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)

Romania

30%

39%

57%

63%

59%

51%

Say that head office management understand thebusiness environment that they face in their

market

Say that, in the last 2 years, senior managementfrequently communicate about the importance of

maintaining high ethical standards whenconducting business

Say senior management has stronglycommunicated its commitment to their ABAC

policies

Are confident that head office management obtains the right level of data to assess the

reliability of their business unit’s financial results

Are confident that head office management uses the data that they collect to assess the reliability

of their business unit’s financial results

Say senior management in their company displayhigh ethical standards in the way they conduct

business

Page 16

Volatility – a driver of corruption?

Slower than expected economic growth

58

25

20

Slower economic growth thanexpected in our country

Political instability in some of thecountries we trade in

Uncertainty about our ability to tradedue to economic sanctions/export

controls

Q. Are any of the following increasing the challenges for the growth or success of your business? Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)

% Applies

Eastern


All

respondents

57 54 62 58

31 25 41 32

25 20 30 24

% Applies

Romania

Page 18

Management under pressure

Managers are under

pressure to create new

revenue opportunities

Managers are under

pressure to expand into

higher risk markets

% Agree

Romania

Eastern

Europe Developed

Rapid-

growth

All

respondents

43 52 57 61 57

18 29 23 44 31

Q. To what extent do you agree or disagree with each of the following statements? Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)

% Don’t know is not displayed

% Strongly disagree % Tend to disagree % Neither agree nor disagree % Tend to agree % Strongly agree

25

31

10

13

4

16

25

12

18

6

Romania

Page 19

22

39

33

42

37

Romania

Eastern Europe

Developed

Rapid-growth

All respondents

Manipulation of financial performance

% Applies

Companies in this country often report

their financial performance as better than

it is

Q. Can you indicate whether you think it applies, or does not apply, to your country/industry or whether you don’t know? Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)

Page 20

Sharing negative financial performance

23

19

21

19

19

10

14

10

17

14

6

8

5

10

7

21

23

24

25

24

19

17

19

16

18

%

Agree

40

40

43

41

42

Q. Negative financial performance compared to our financial plan is shared in an open and transparent way with

management at head office Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)


Romania

Eastern Europe

Developed

Rapid-growth

All Respondents


Page 21

Financial misstatement justifiable?

28

15

8

2

41

21

Negotiating retrospective rebates withsuppliers

Booking revenue from rebates withsuppliers early

Requesting suppliers delay invoicing

Deliberately misstating financialperformance

At least one of the above

Don’t know

Q. Which, if any, of the following do you feel can be justified if they help a business survive? Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)

% Applies

% Applies

Eastern

Europe Developed Rapid-growth All respondents

28 23 39 27

15 10 23 14

12 11 16 12

5 3 8 4

41 33 54 39

13 15 8 12

Romania

Page 22

Financial misstatement in the last twelve months

11

7

8

4

21

14

Negotiating retrospectiverebates, bonuses or discounts

from suppliers

Revenues being recordedbefore they should be to meet

short-term financial targets

Under-reporting of costsincurred to meet short-term

financial budgets

Customers being required tobuy unnecessary stock to

meet short-term sales targets


Don't know

% Applies

Eastern

Europe Developed

Rapid-

growth

All

respondents

13 9 24 14

6 6 16 10

9 6 14 9

7 5 14 8

26 18 43 28

15 18 11 15

Q. Which, if any, of the following have you heard of happening at your company in the last 12 months? Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)

% Applies

Romania

Page 23

39

63

35

61

51

Romania

Eastern Europe

Developed

Rapid-growth

All respondents

Bribery and corruption widespread

Q. Can you indicate whether you think it applies, or does not apply, to your country/industry or whether you don’t know? Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)

% Applies

Bribery/corrupt practices happen widely in

business in this country

Page 24

Bribery justifiable?

10

14

19

31

Offering personal gifts

Offering cash payments

Offering entertainment


Q. Which, if any, of the following do you feel can be justified if they help a business survive?

Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800) % Don’t know is not displayed

% Applies

Eastern


All

respondents

13 14 26 19

16 11 28 17

15 14 22 17

30 27 47 34

% Applies

Romania

Page 25

Does compliance enable growth?

Revenues – increased or decreased?

% Increased

Romania

Eastern

Europe Developed

Rapid-

growth

All

respondents

55 54 48 65 56

Q. Would you say that the revenue of your company has increased, decreased, or stayed the same over the last 2 years? Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)


Romania

Decreased a lot Decreased a little Stayed the same Increased a little Increased a lot

21 14 4 33 22

Page 27

Compliance and ethics

16%

60%

56%

45%

29%

Rate their company’s ethical standards when doing business as very good

Are confident that theirbusiness operations in

different countries meet thesame ethical standards

Disagree that unethicalpractices often go unnoticed

by head office

Say ethical standards havegot better in their company in

the last two years

Say that the level of regulatory activity in the last two years

had a positive impact on their company’s results

Eastern Europe Developed Rapid-growth All respondents

19 26 30 26

45 51 56 52

42 39 50 44

27 25 41 33

16 12 33 19


Romania

Page 28

Protecting sustainable business value

Regulation

54

32

38

Say the level of regulation intheir sector has increased in

the last two years

Say regulatory activity in theirsector had a positive impacton ethical standards in their

company

Say increased regulation intheir sector is increasing thechallenges for the growth or

success of their business


Romania

% Applies

Eastern

Europe

Developed

Rapid-growth

All

respondents

44 46 45 47

17 17 36 24

34 40 43 41

% Applies

Page 30

Basic building blocks - some way to go

Q. For each of the following, please indicate whether it applies, or does not apply, to your organisation, or whether you don’t

know? Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)

58

57

56

47

We have an anti-bribery/anti-corruption policy and code of

conduct

Senior management has stronglycommunicated its commitment to

our anti-bribery/anti-corruptionpolicies

There are clear penalties forbreaking our anti-bribery/anti-

corruption policies

The company has taken actionagainst employees for breachingour anti-bribery/anti-corruption

policies

% Applies

Eastern

Europe

Developed

Rapid-growth

All

respondents

49 59 62 57

42 51 53 50

39 47 53 48

32 30 46 37

% Applies

Romania

Page 31

16 12 36 9 16

Policies harming business?

Q. If we followed our anti-bribery and anti-corruption policy very closely, it would harm our competitiveness in this market Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)


% Agree

Romania

Eastern

Europe Developed

Rapid-

growth

All

respondents

25 19 14 23 20 Romania


Page 32

Are management engaged enough?

49

20

11

5

15

At least once every sixmonths

At least once every year,but not more than once

every six months

Less often than once ayear

Never

Don’t know

% Applies

% Applies

Eastern Europe Developed Rapid-growth All respondents

44 33 52 42

21 24 20 22

15 17 12 14

4 6 4 5

16 21 12 16

Q. As far as you are aware, how often, if at all, do members of the management team of your head office visit local offices

or factories? Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)

Romania

Page 33

Management following up on whistle-blower reports

10

7

5

6

6

18

26

24

18

24

19

20

20

24

21

33

31

29

37

32

% Company does not have a hotline % Never % Sometimes % Always

Q. Do you think that a report to your company’s whistle-blowing hotline would be followed up on by senior management? Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)


Romania

Eastern Europe

Developed

Rapid-growth

All Respondents

Page 34

Anti-bribery/anti-corruption training

10

13

12

10

11

2

4

3

4

3

32

41

40

26

37

29

25

27

27

27

21

11

13

29

18

% Useful

50

36

40

56

44

Q. Thinking about anti-bribery/anti-corruption training you may have attended, how useful do you feel this training was in

helping you to make appropriate decisions in the role you perform for your company? Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)


Romania

Eastern Europe

Developed

Rapid-growth

All Respondents

% Not attended any training % Not at all useful % Not very useful % Fairly useful % Very useful

Page 35

Third-party risk management

31

28

18

27

12

8

Approved supplier database

Background checkingsystem

Audit rights / regular auditsof the third-party

Use software/technologybased check of third-party

Check on ownership of thethird-party

Use external providers torun checks

% Applies

Eastern Europe

Developed

Rapid-growth

All respondents

25 22 35 28

23 18 32 24

19 17 27 21

17 13 21 19

16 10 23 16

13 13 18 15

Q. Thinking about third parties that are used by your part of the business, what systems or processes do you have in place

to manage and monitor those relationships? Base: Romania (100); Eastern Europe (1,400); Developed (1,600); Rapid-growth (1,100); All respondents (3,800)


% Applies

Romania

Page 36

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