A man returned home after traveling, and his wife embraced him so emphatically that she broke a rib. As it turned out, this was a mere curiosity and not a case of insurance fraud, investigators from Česká pojišťovna (ČP), the country’s largest insurer, decided.
The same cannot be said of another client, who hit a deer on the road and, fearing permanent injury — for him, not the deer — contracted accident insurance after the incident.
“Our staff report irregularities [like this]. After an investigation, no money was paid out,” said Pavel Východský, ČP’s director of investigation.
The insurer is not alone in suffering from fraud, or attempts of fraud. Sixty-one percent of companies in the Czech Republic have been hurt by fraud, corruption or another economic crime at some point in the past two years, compared with 43 percent globally, according to a biennial report released by PricewaterhouseCoopers (PwC) Oct. 16.
Czech companies have lost, on average, an estimated $1.7 million (32.6 million Kč) over the same time span to these crimes, and have spent an average of $639,000 (12 million Kč) on investigating the cases, the report said.
Asset misappropriation, which includes theft and embezzlement, is the most widely reported crime, with the insurance and retail sectors most affected. Bribery and corruption, which came in second, actually provided a bit of good news as it dropped to 27 percent from a high of 43 percent in 2005.
“However, the situation on the Czech market is still grave,” said Sirshar Qureshi, investigations partner at PwC’s forensic services team. “Czech companies are three times more likely to be put in a position to be asked for a bribe than companies in Western Europe. … Almost half of our respondents say they lost an opportunity to a competitor whom they believe may have paid a bribe.”
Despite the high prevalence of economic crimes, nearly 50 percent of Czech respondents decided not to report suspicious activities to the police, and only 30 percent of companies informed regulatory agencies.
Often the greatest threat comes from within, the report said, as 40 percent of reported crimes were committed by company employees.
“The higher the level of management, the higher the cost to the organization,” Qureshi said. When senior managers are charged with embezzlement, other factors come into play: The company reputation might suffer, business relations may be severed and overall morale is likely to decline.
According to the survey, which polled 79 leading companies active in the Czech market, fraudsters were easily tempted to crime in 54 percent of reported cases, and lacked an awareness of their own wrongdoing 40 percent of the time. A salesman who pays a bribe to secure a sale might even consider himself to be acting in the interests of his company, Qureshi said.
The good news is that almost half of companies polled have introduced a whistle-blowing system, which exceeds the global average. Qureshi pushed for whistle–blowing when he first came to the Czech Republic six years ago. “People looked at me in horror,” he said. Memories of the communist secret police force, the StB, were still fresh, and the thought of a whistle-blower who reports other colleagues’ misconduct anonymously was not welcome.
But today, whistle-blowing is twice as effective here as worldwide, with 16 percent of fraud reported via anonymous hotlines — more than the global scale (8 percent) and in central and eastern Europe as a whole (10 percent).
What can happen without effective oversight can be seen in the bribery scandal that rocked the German firm Siemens last year, with auditors finding 100 million euros (2.7 billion Kč/$143 million) in suspicious payments. Subsequently, Siemens has strengthened internal controls.
“Our employees can report any suspicions regarding economic crime or any kind of misconduct anonymously,” said Petr Sedláček, Siemens’ Czech Republic spokesman. “Our intranet homepage contains a special feature that allows anonymous reporting of such suspicions.”
In addition, the company has issued a code of ethical behavior, and employees who run against it will “face very severe consequences,” Sedláček said.
This is the right track to take, according to Qureshi.
“Companies depend on a transparent corporate culture and the right approach of their employees — their awareness, responsibility and readiness to recognize and expose improper conduct,” he said.
However, many Czech companies remain naive about the risks posed by fraud. Only 15 percent of respondents to PwC’s survey considered it likely that they would be victims of fraud during the next two years, and more than a third of respondents do not plan to take any preventive measures.
“Companies are already showing signs of complacency,” Qureshi warned.