98% Chinese Enterprises Suffer From Fraud &Nbsp; Severity Ranks First In The World.

Suggestions to strengthen internal control and due diligence

At the end of August, Shangri-La Hotel, Ningbo.

Local luggage manufacturer Wang Hong (pseudonym) here invites European buyers from Hongkong.

As European buyers temporarily cancelled orders, he was on the alert.

"Last year, several of Zhejiang made bags, because many customers failed to pay the money after delivery."

Wang Hong told the first Financial Daily reporter that he specifically invited European buyers to come to deepen mutual understanding.

In response, European buyers explained that the cancellation of orders is entirely a decision of end customers.

Mr. Wang chose to continue to work with the European buyer, because the customer had already paid the deposit, which could fill the cost of raw materials and add more losses to the factory.

Wang Hong's vigilance is not groundless.

Global risk consulting firms

What is even more shocking is that fourth annual anti fraud reports released by Kroll, based in New York, show that 98% of China's surveyed enterprises suffered at least one fraud last year. China has surpassed Brazil, the top of the list in 2009, and has become the country with the most fraudulent practices.

According to the introduction, the company commissioned the economist information department to conduct a global survey of fraud and its impact on enterprises from last year to August this year.

A total of 801 senior executives from 10 industries took part in the survey. More than half of the surveyed companies earn more than $500 million a year in the world, of which 29% are located in North America, 25% in Europe, 24% in the Asia Pacific region, and 11% in the Latin America, the Middle East and Africa.

According to the latest survey, the proportion of enterprises in China has been increased by nearly 10%, and ranked 98% in the world.

Kroll, executive director of China, Yue Yue told the newspaper: "in the Asian historical and cultural atmosphere, the victims of fraudulent practices are often seen as weak and incompetent. Therefore, fraud has always been a topic of public deliberate avoidance.

The vast majority of Chinese respondents admitted that they had experienced economic fraud, and to some extent showed the courage of the new generation of Chinese business managers to face up to challenges.

She believes that the change of attitude is the first step on the right and long road to fight corruption and fraud.

Up to 98% of the data fully reflect the universality of economic frauds in the Chinese market. At the same time, because of the global financial crisis, enterprises and financial institutions have tightened their money supply, and the review of efficiency and expenditure has been strengthened accordingly.

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Frequent staff changes are signals.

The report points out that fraud in Chinese enterprises is more common and changeable than other parts of the world.

A total of 11 kinds of fraud were included in the survey, including management conflict of interest, theft of intellectual property rights, piracy or fraud, theft of physical assets or inventory, regulatory fraud or compliance fraud, poor financial management, market collusion, corruption and bribery, sellers, suppliers or procurement fraud and money laundering activities.

11 kinds of fraudulent practices. Last year, there were 9 Chinese visiting enterprises which affected at least 10%.

"We see that China is seeing more and more deceptive frauds, which are much more financial, legal and reputational than the usual isolated kickbacks and bribery incidents," he said.

Greed, today's hoax involves many departments, sellers and offshore agencies, and it may not be discovered for many years. "

According to her, in one case, the Shanghai Office of a large consumer goods importer in China was checked by the customs law enforcement officers, all the financial information and computers were detained, and the top management of the company was also detained.

After that, the survey showed that the senior management had bribed several customs officials over the years so that the latter could not turn a blind eye to the imported invoices for tampering, so that the company could avoid import duties.

After that, the company faced huge fines and its business license was also suspended.

The follow-up investigation conducted by Kroll further found that the company's top executives at the same time control several local distributors and sell smuggled goods through the company's distribution network, which makes the company face more serious legal risks and economic losses.

"Kroll found that some enterprises in China lost millions of dollars because of this situation, because these enterprises could not identify some dangerous signals."

She said that the higher turnover rate of employees, especially the frequent changes in senior personnel, can be regarded as "Red Alert".

"The parties will be more likely to attract new people to accept fraud, which can be interpreted as" we do things like this ".

She said.

Strengthening enterprise internal control and trade secret protection

The report points out that enterprises operating in China are beginning to expand their methods of combating fraud.

52% of the enterprises plan to invest in financial control, 54% of them plan to invest in staff training, and another 42% plan to conduct more employee background surveys.

The report points out that the above capital investment is very significant because the investigation of Chinese enterprises believes that up to 42% of the fraud is "theft".

Tadashi Kageyama, senior executive director of Kroll, warned that Chinese companies should invest more in protecting business secrets.

According to him, theft of intellectual property and information often occurs in the medical, health and biotechnology industries. Local and global companies are upgrading their products and increasing their R & D content.

In the fierce competition for market share, many enterprises are desperate.

The report shows that theft of intellectual property has become the second most common form of fraud in China, second only to management fraud.

Kageyama pointed out that many of the cases he contacted were disguised as potential buyers, or they bought their clients to obtain business secrets.

Therefore, he suggested that in addition to strengthening internal control, more resources should be invested in carrying out due diligence on partners, customers and sellers.

However, the survey shows that the proportion of Chinese enterprises planning to invest in due diligence next year is 32%, lower than the global average of 41%.

He Yue believes that economic fraud is not only affecting Chinese enterprises. With the trend of globalization, enterprises and individuals in any country or region may be attacked by fraudulent practices.

The leading role of international trade, the lack of pparency in the legal environment, and the imperfect corporate governance system make the impact of fraud on Chinese enterprises remarkable.

But in her view, this does not mean that China is no longer an attractive investment market. Investors and entrepreneurs in China should have confidence to face the reality and take measures to combat fraud.