Canadian businesses are becoming more global in order to achieve growth, but according to a new survey released by Ernst & Young, globalization can mean more exposure to risks such as fraud, bribery and corrupt business practices.
Fifty-three per cent of Canadian respondents say their management is pursuing growth opportunistically while economic recovery remains unclear. Twelve per cent go even further to say that management in their firms is pursuing aggressive growth as demand improves.
"It's important to remember that these growth opportunities have different risks," says Mike Savage, leader of Ernst & Young's Fraud Investigation and Dispute Services practice group. "Local knowledge and due diligence are needed to manage the fraud risks of conducting business in new geographies."
Although less fraud was experienced in Canada than globally, the survey indicates that levels of fraud and fraud risk remain high. In fact, nearly 10 per cent of Canadian companies surveyed have experienced "significant" fraud in the past two years.
And although reported levels of bribery have declined, the survey reveals that some Canadian businesses may cross the line to survive recessionary challenges.
When asked what actions are justifiable to help a business survive, no Canadians feel that giving or accepting personal gifts is appropriate. However, 29 per cent of Canadian respondents say they justify entertaining clients as acceptable business expenses in these circumstances. Some, (8 per cent) feel that misstating financial performance can be justified, and 6 per cent say cash payments can be justified.
What's more, a disturbing proportion, 15 per cent of Canadian respondents are unsure if facilitation payments are permitted. Facilitation payments are often referred to as "grease money" – intended to ease the administrative process, rather than to influence a decision. The distinction can be subtle and many countries don't distinguish at all between bribes and facilitation payments.
Confidence in Canada is high, with 80 per cent of respondents believing in the effectiveness of internal controls to detect fraud, bribery or corruption, and most companies do assess their fraud risk. Only 6 per cent of Canadians (15 per cent globally) have never assessed their fraud risk.
As Savage indicates, there is always room for improvement. "Canadian companies have made a lot of cuts to survive over the past few years but, as business picks up, there is a risk that the internal controls may be insufficient to support the needs of the new business environment."
For effective fraud prevention, Canadian respondents put the most confidence in strong internal controls (84 per cent compared to 74 per cent globally), rigorous internal audit (69 per cent versus 65 per cent globally) and regular management reviews (65 per cent compared to 55 per cent globally). Although perceived to be less effective, 41 per cent of Canadian respondents feel that regular rotation of personnel is more likely to prevent fraud compared with 31 per cent globally.
The good news is that when fraud does occur or a suspected case is reported, Canadian companies are far more likely to have developed a set of first responses, including a clear process of reporting incidents to the board (82 per cent compared to 52 per cent globally), defined roles within investigations for internal audit, compliance, risk and legal (76 per cent compared with 51 per cent globally), and consistent disciplinary processes (61 per cent versus 46 per cent globally).
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. For more information, please visit ey.com/ca.