Journal of Financial CrimeFraud victimization in Greece: room for improvement in prevention and detectionMaria Krambia Kapardis Konstantinos Papastergiou

Article information:To cite this document:Maria Krambia Kapardis Konstantinos Papastergiou , (2016),"Fraud victimization in Greece: room forimprovement in prevention and detection", Journal of Financial Crime, Vol. 23 Iss 2 pp. 481 - 500Permanent link to this document:http://dx.doi.org/10.1108/JFC-02-2015-0010

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Fraud victimization in Greece:room for improvement inprevention and detection

Maria Krambia KapardisCyprus University of Technology, Limassol, Cyprus, and

Konstantinos PapastergiouDepartment of Accounting and Finance,

Athens University of Economics and Business (AUEB), Athens, Greece

AbstractPurpose – The purpose of this paper is to investigate fraud victimisation of Greek companies duringthe financial crisis years. Moreover, the paper seeks to encourage the implementation of proactive andreactive measures in an effort to minimize fraud victimisation.Design/methodology/approach – Drawing on an extensive literature review and utilising aquestionnaire administered by Krambia-Kapardis and Zopiatis (2010), auditors and management ofcompanies who had fallen victim to fraud provided information on the typology of fraud and onproactive and reactive measures taken after a fraud incident had been reported to them. Bothdescriptive and inferential statistics were utilized to analyze the collected data and address thepostulated research questions.Findings – The survey has found that no industry or size of company is immune from fraud, withbigger companies and small- and medium-sized enterprises (SMEs) falling victim to industrialespionage and theft of cash and counterfeit, respectively. The banking and insurance sector appeared tobe affected mainly by money laundering. Management fraud was mainly in the form of windowdressing, whilst employee fraud involved predominately theft of cash and assets. Loss of reputationemerged as the main concern for the victim, and it had a determining impact on deciding not to reportcases to the police.Research limitations/implications – Because of the sensitive topic being investigated and despitehaving assured the respondents that their anonymity would be guaranteed, the respondents werehesitant in responding. Thus, the response rate was 16.4 per cent, slightly lower than a similar studycarried out in Cyprus (Krambia-Kapardis and Zopiatis 2010). The findings, however, are considered tobe reliable, given the fact that the respondents were individuals well versed with the topic underinvestigation and in a position to know if their company had fallen victim to fraud.Practical implications – The findings have practical relevance to both industry stakeholders andacademics who wish to further explore fraud victimization in the Greek business environment. Giventhat the financial crisis in Greece is continuing, fraud risk assessment ought to concentrate in the areaof cash, and preventative measures need to be considered by the regulators and the victims.Originality/value – Whilst fraud victimisation studies are becoming popular by the Big 4 accountingfirms, there is no fraud victimisation study concentrating on the typology of fraud in Greece. With thissurvey, it will be possible to draw conclusions and make suggestions to the accounting profession onhow to combat fraud, at a time, when the economic crisis is persisting and fraud is expected to escalate.

Keywords Greece, Prevention, Fraud, Typology of fraud, Victimisation

Paper type Research paper

The current issue and full text archive of this journal is available on Emerald Insight at:www.emeraldinsight.com/1359-0790.htm

Fraudvictimization

in Greece

481

Journal of Financial CrimeVol. 23 No. 2, 2016

pp. 481-500© Emerald Group Publishing Limited

1359-0790DOI 10.1108/JFC-02-2015-0010

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IntroductionFraud and financial crimes generally, although complex, have existed since timeimmemorial, evolving over the centuries and becoming more complex and difficult toinvestigate causing catastrophic consequences to businesses and the economy of acountry. Fraud erodes investor trust and influences stock market liquidity andperformance, yet investors are not aware of common fraud (Cumming and Johan, 2013)until they are victimized, and auditors have difficulty identifying indicators ofnarcissism and personality trait linked to unethical or fraudulent behaviour (Johnsonet al., 2013). According to Pickett (2012, p. 7), “large frauds have led to the downfall ofentire organizations, massive investment losses, significant legal costs, incarceration ofkey individuals, and erosion of confidence in capital markets”. More specifically, theAssociation of Certified Fraud Examiners (Association of Certified Fraud Examiners,2014) estimated that a typical organization loses 5 per cent of its annual revenues tofraud and corruption. If applied on the Central Intelligence Agency, 2013 (estimated)[1],this translates to nearly $3.7 trillion. Some developed countries have experienced anumber of occupational fraud cases in the past decade, including: Enron, WorldCom,Parmalat, Bernie Madoff and Satyam frauds (Bhasin, 2013; Buchanan and Yang, 2005;Clauss et al., 2009; Kuhn and Sutton, 2006, and Li, 2010) that have shown that noindustry or size of company is immune to fraud. As a result, people’s reliance onfinancial information and the confidence and faith in business relations have negativelyaffected the financial stability of companies and countries; thus, fraud victimizationstudies (Barlaup et al., 2009; Krambia-Kapardis and Zopiatis, 2010) provide informationon the dark figure of fraud, in an effort to reduce this crime.

Greece, a country that has in recent years found itself in the midst of a deep economiccrisis, and with a gross domestic product (GDP) of $240bn in 2013[2], is expected to havelost an estimated of $12bn to fraud. Moreover, the huge mass of hidden harm thatfinancial crime and corruption cause in a country[3] has a negative impact on aneconomy like Greece’s, and it can put it in deeper economic downturn. Because of thedark figure of fraud and the low reporting of fraud incidence (as illustrated inKrambia-Kapardis and Tsolakis, 2011 and reiterated in Papandreous’ 2013 courtproceedings), such crimes have low visibility. Thus, fraud victimization studies canprovide useful information to stakeholders and regulators to decrease the incidence offraud.

Given the limited published work on fraud victimization in Greece, the current paperseeks to investigate a typology of fraud and preventative and investigative methodsused once fraud has been reported to management. Such findings will assist both theregulators (e.g. Stock Exchange, Professional Associations) and practitioners (external,internal, fraud auditors and forensic accountants) to implement legislation, regulation,adequate internal controls and a corporate culture in minimizing the impact of fraud onthe victims. Organisations and in particular audit committees ought to carry out routinefraud risk assessments; thus, information derived from the present study will assistthem in identifying high risk areas to concentrate their testing in.

Literature reviewAlthough many researchers describe fraud and financial crimes as “invisible crimes”(Jupp et al., 1999), these have common characteristics when they are committed (Croall,1999; Pickett and Pickett, 2002). Despite being criticized for their reliability,

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victimization studies present a more realistic and detailed information about economiccrimes, as they are concerned with “the dark figure of crime”, whilst official policestatistics from authorities do not (Smith, 1999). The first victimization studies werecarried out in the 1960s and 1970s (Wilcox, 2010) and were influenced by the growth offeminist theory and later victimology. They emphasized the importance of victims’ viewin relation to their victimization and the “invisibility” in official statistics of certain typesof crime (UNODC, 2010). Seeking to understand crimes not well identified by policestatistics and other authorities, like fraud and financial crimes, these surveys arebecoming an important research tool (more effectively in combination with othermethods) to assist in identifying aspects of crime and victimization that could not beeasily captured by the administrative sources.

State of artFraud victimization surveys are carried out predominately by Big 4 accounting firms(PwC, Ernst &Young, KPMG and Deloitte) and other organisations (e.g. ACFE, Kroll,etc.) in an effort to raise awareness and build capacity on fraud, as well as to advocate forenhanced fraud auditing procedures. Given the financial crisis and the unstable globaleconomic climate, many governments have undertaken to reduce economic crime byimplementing legislation and harsher penalties for fraud offenders. At the same time,organisations have been using forensic accountants and fraud auditors in an effort toprevent and detect fraud. In addition, companies, bearing in mind the economic scandalsand the economic impact on their survival, they have implemented measures andprocedures to reduce fraud if not eradicate it (Association of Certified Fraud Examiners,2009; Levi and Smith, 2011; Ryder, 2014). However, given the persistent economic crisis,one expects fraud to be increasing rather than decreasing.

Recent studies (Kroll, 2014) show that organizations are victimized more frequentlyas time passes, whereas the level of fraud increased in the past 12 months, reversingrecent trends. Overall, 70 per cent of companies reported having suffered from at leastone type of fraud in the past year, an increase of 9 per cent from the previous poll (Kroll,2014). Moreover, in a similar fraud study by PricewaterhouseCoopers (2014), 37 per centof respondents had been victimized by fraudsters, an increase of 3 per cent from the 2011survey and 7 per cent from 2009. Whether, of course, the increases found are real to someextent also reflect increases in fraud-victimization reportability, an issue which furtherresearch can investigate.

In addition to fraud, corruption and specifically bribery have been reported inrelevant fraud studies as also increasing rapidly and having a significant impact onbusinesses (Association of Certified Fraud Examiners, 2014; Ernst & Young, 2013;PricewaterhouseCoopers, 2014). Similarly, financial statement manipulation and assetmisappropriation are still on the top of business risks relating to fraud. Additionally,business attention is diverted in recent years to cyber crime which is considered as a newthreat to organizations created by the increasing use and reliance on technology (Ernst& Young, 2014; PricewaterhouseCoopers, 2014). Guillot (2013, pp. 44) has stated that “ITfraud continues to increase in variety, frequency, and sophistication” with growing risksfrom social media.

Corporate governance refers to the policies and procedures undertaken by the Boardand management in controlling and directing a business. In ensuring the effectiveimplementation of corporate governance, it is also important that one looks at the

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implementation of codes of conduct, as well as the effective use of audit committees inpreventing fraud. According to Razali and Arshad (2014), effective corporategovernance measures are essential to preventing corporate scandals, fraud andpotential civil and criminal liability. Razali and Arshad’s (2014) content analysis studyof annual reports of 227 publicly listed companies in Malaysia have found that theeffectiveness of corporate governance structure reduces the likelihood of fraudulentfinancial reporting. In addition, Vafeas (2005) shows that the measures of auditcommittee and board structure are related to earnings quality in a manner that isgenerally consistent with the predictions of agency theory, whilst Harrast andMason-Olsen (2007), as well as many other US researchers (Dechow et al., 1996; Beasleyet al., 2000; McMullen, 1996), remarked that audit committees help deter managementfraud and enhance the integrity of financial reporting. For their part, Barlaup et al. (2009)and PricewaterhouseCoopers (2012) have indicated that having a code of conduct and/orethical guidelines, as well as compliance programs, are critical in the effective mitigationof risk as far as fraud, corruption and ethical behaviour are concerned.

Proactive fraud prevention and detection controls are a vital part in managing therisk of fraud. Whilst external audits are considered as the most common control enactedby victim organizations, their contribution in fraud detection is worthless (Associationof Certified Fraud Examiners, 2014), as the external auditor’s primary role is to form anopinion on the financial statements and not to detect fraud (Krambia-Kapardis, 2001)but to act as a “watchdog not a bloodhound” (Lord Justice Lopes in Re Kingston CottonMills Co., 1896). The fraud victimization studies in recent years have shown that fraudis normally reported via anonymous whistleblowers or the use of hotlines (Associationof Certified Fraud Examiners, 2014; Bussmann and Werle, 2006; Kroll, 2014;PricewaterhouseCoopers, 2014), illustrating the usefulness of whistle-blowingprotection legislation. Such legislation was only recently enacted[4] in Greece.

Association of Certified Fraud Examiners (2014) and Kroll (2014) have found thatorganizations are more frequently victimized by internal fraudsters (i.e. employee ormanager) and rarely by external party (customers, suppliers, etc.). Similar findings werefound by Krambia-Kapardis and Zopiatis (2010) and Peltier-Rivest and Lanoue (2012),where the perpetrators in most of the cases were “internal” with the vast majority ofthem being low-level employees. Specific studies (Gill and Goldstraw-White, 2010;Hollinger and Adams, 2006) were also carried out on employee fraud. Interestinglyenough, the hierarchical position held by a perpetrator may facilitate certain types offraud (Holtfreter, 2005). More specifically, Krambia-Kapardis and Zopiatis (2010) foundthat theft of cash, petty cash fraud and theft of assets were the three most common typesof fraud committed by employees, whilst conflict of interest, unnecessary purchases andwindow dressing/financial statement manipulation were revealed as the three mostcommon types of fraud involving managerial-level employees. It is worth pointing outthat where the perpetrator holds management position, there is a strong correlation withfraud losses, as the “manager-fraudster” has greater opportunity than an employee tooverride internal controls and commit fraud (Peltier-Rivest and Lanoue, 2012). Inaddition, subordinates very rarely question the authority of their superior, thus allowingthe fraud to continue for a longer period of time.

In looking at fraud committed by external parties, normally collusion with an insiderfraudster makes the fraud being committed more difficult to uncover (KPMG, 2013a).Moreover, studies illustrated that external fraudsters are still the main perpetrators of

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economic crime for the majority of financial service organisations (57 per cent in 2014and 60 per cent in 2011)[5]. Krambia-Kapardis and Zopiatis (2010) identified that thethree most common types of fraud committed by external parties were dishonouredcheques or cheque forgery, poor quality of goods and services provided and theft ofassets.

Considering the size of the organization victimized, Association of Certified FraudExaminers (2014) found that small companies (with less than 100 employees) werevictimized in greater percentage than larger one. The reasons provided by someresearchers (Hanno and Hughes, 1999; Tysiac, 2012) is that small businesses are lesslikely to be audited because they are small and are not publicly listed requiring anexternal audit. Furthermore, smaller organizations would probably not havesegregation of duties and other internal controls implemented because of the smallernumber of employees. Despite the fact that the magnitude in monetary terms of thefraud loss is higher in larger organisations, the impact of fraud in SMEs[6] is greaterthan big companies, and in some cases, it may even jeopardize the sustainability of theorganisation. In fact, a study in California[7] has found that 30 per cent of businesses failbecause of employee theft. Furthermore, Association of Certified Fraud Examiners(2014) stated that small companies face different fraud risks than larger companies, suchas cheque tampering schemes, payroll fraud (Bressler and Bressler, 2007) and cashlarceny occurring more frequently in small companies, whilst corruption remains asignificant threat to larger industries.

In considering fraud-prone industries, different type of fraud is found to becommitted in different industries. Greenlee et al. (2007) found that assetmisappropriations (in particular cash theft) comprise more than 97 per cent of allreported frauds, in non-profit organizations in Australia. Similarly, Krambia-Kapardisand Zopiatis (2010) found that individuals working in the automotive industry are morevulnerable to receiving corruption/bribery payments and invoice manipulation incomparison to individuals working in the semi-government sector, the banking and theretail/wholesale industries. The same study found that third-party fraud, in the form ofdishonoured cheques or cheque forgery happened more commonly in theretail/wholesale companies compared to other industries; industrial espionage posed aproblem for the manufacturing industry; and, finally, poor quality of goods/servicesprovided and price fixing constituted a major problem for the health industry.

Bussmann and Werle (2006), in their global fraud survey, found that organizations,generally launched an internal investigation, commissioned an external investigator orcalled in law enforcement officers when fraud was reported to them. Similar findings arereported by PricewaterhouseCoopers (2014) and Association of Certified FraudExaminers (2014). However, Krambia-Kapardis and Zopiatis (2010), in their study, inCyprus, found that internal investigation, immediate dismissal and disciplinary actions,all describing internal reactive procedures, were the most likely responses when fraudwas detected and on only rare occasions would they report the incident to the police orother authorities. The difference in the approach taken would relate to cultural issueswhere in Cyprus and perhaps Greece, as opposed to other parts of the world, the fraudvictimized company would opt to address the matter internally, as it is a small countryand any involvement of external authorities or investigators would especially affect thereputation of the company, its employees and the fraudster.

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Another parameter worth considering is the post-fraud detection priority of thevictimized companies (Association of Certified Fraud Examiners, 2014;PricewaterhouseCoopers, 2014), which is no other but to recover the loss incurredbecause of fraud. Interestingly enough, only 14 per cent of victim organizations had beensuccessful in a full recovery (Association of Certified Fraud Examiners, 2014). Morespecifically, in 58 per cent of cases reported, the victim organizations had not beensuccessful in recovering the loss incurred from the fraud being committed.

State of practice – Greece. Fraud victimisation surveys pertaining to Greece werecarried out by PricewaterhouseCoopers (2011) and Deloitte (2014). Deloitte (2014) notedthat 62 per cent of the respondents had been victimized by fraudsters, whereas an earlierstudy by PricewaterhouseCoopers (2011) found that only 14 per cent of respondents hadbeen victimised by fraud offenders. The reason for the fraud victimisation difference inthe three-year gap between the two studies could either be that fraud victims were morewilling to admit to having been victims to a fraud in 2011 or that fraud had increasedfrom 2011 to 2014. According to the type of fraud committed, PricewaterhouseCoopers(2011) found asset misappropriation and cyber crime were the main types of fraud beingcommitted against Greek organisations. Similarly, Vlachos et al. (2011) found thatcomputer-related crimes are increasing in Greece. Furthermore, according toPricewaterhouseCoopers (2011), asset misappropriation, unfair competition, cybercrime and bribery/corruption were the most common “fraud fears” that Greekcompanies had. A finding slightly different to PricewaterhouseCoopers (2011), wherefraudulent claims lending/credit, corruption and bribery, accounting fraud and theft ofbusiness information, as well as asset misappropriation, were the most commonly fraudschemes in Greece at the time.

Corruption and bribery seriously harm the economy and society as a whole. Bothinternationally and in Europe, many countries suffer from deep-rooted corruption thathampers economic development, undermines democracy and damages social justiceand the rule of law (European Commission, 2014). Greece is not immune to this type ofcrime. Although Greece’s ranking by Transparency International’s Greece (2014) indexindicates that Greece has improved in its global position from 80th in 2010 to 69th in2014, Greece maintained its last position in the EU ranking. Corruption is widespreadand remains one of the main problems in the Greek business environment, affectingeconomic growth and affecting on democracy. Interestingly enough:

Eighty nine per cent of Greek businesses (EU average: 73 per cent) and 80 per cent of therespondents from the general population (EU average: 69 per cent) believe that favouritismand corruption hamper business competition in Greece; 92 per cent of companies consider thatbribery and the use of connections is often the easiest way to obtain certain public services (EUaverage: 69 per cent); 66 per cent of business people (EU average: 43 per cent) believe thatcorruption is a problem for their company when doing business in Greece and 67 per centconsider patronage and nepotism an obstacle (EU average: 41 per cent) (EU Commission, 2014,p. 3).

Other issues addressed in fraud victimisation studies relate to the identity of the fraudoffender and the whistleblower. PricewaterhouseCoopers (2011) reported that thefraudster was predominantly “internal” to the fraud victim organisation and the fraudwas identified by the internal auditor or accidentally by a whistleblower. Deloitte (2014),as well as Association of Certified Fraud Examiners (2014), estimated that the cost of

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fraud is 5 per cent of the annual revenue, whilst PricewaterhouseCoopers (2011) notedthat the organization’s losses doubled in two years.

Furthermore, it was found that despite the fact that Greek fraud-victimisedcompanies had in place measures for preventing, detecting and responding to fraud,fraud had caused huge losses to the victims. As one would expect, the preventativemeasures are more evident in large Greek companies, rather than in SMEs, where in thelatter, it is easier for fraud to occur because they are family-owned enterprises that lackthe controls to protect themselves against potential fraud” (KPMG, 2013a, p. 10).

As previously stated, many studies indicate that corporate governance plays asignificant role in fraud prevention. The economic crisis in Greece highlighted the needfor a stricter regulatory framework of the capital markets, as well as compliance withinternationally accepted codes and standards, and the implementation of corporategovernance principles and guidelines in the business environment (Nerantzidis andFilos, 2014). Many surveys have identified problematic issues regarding the efficiency ofcorporate governance in Greek companies (Bekiris, 2013; Grose et al., 2014; Spanos et al.,2008), whilst others (Chalevas and Tzovas, 2010) noted that corporate governancemechanisms have no impact on firms’ effectiveness and earnings manipulation. Thus,one can question the effectiveness of corporate governance if used alone as a tool incombating fraud, at least in Greece.

Whilst the official Hellenic Police statistics for 2013 indicate that the amount of fraudcases (including counterfeit) reported to the authorities were 5.379, as opposed to 6.124 in2012 (Hellenic Police, 2014), it is unknown how many cases were actually prosecuted.The complexity of the cases and the lack of visibility by the victim means that fewercases are reported and even less are prosecuted. The present study also addresses whatprocedures the victimized companies follow once they have suspicion of fraud havingoccurred. Perhaps the Greek companies opt for measures like dealing with the fraudsterinternally rather than report the case to the police, as done in Cyprus (Krambia-Kapardisand Zopiatis, 2010).

For the authorities, the auditors, as well as the forensic accountants to be in a positionto address fraud effectively in Greece, it was considered imperative that a companyfraud-victimisation survey be carried out. The survey aims to investigate the typologyof fraud committed in Greece and the proactive and reactive methods undertaken byvictim organisations during the financial crisis years of 2011-2014 once fraud surfaced.

MethodologyUtilising a questionnaire developed by Krambia-Kapardis and �opiatis (2010) andhaving pilot tested it for its usefulness and reliability in Greece, the questionnaire wasemailed in March of 2014 to a randomly selected sample of 750 members of the HellenicAssociations of Certified Fraud Examiners (ACFE), the Hellenic Institute of InternalAuditors (Hellenic-IIA) and the Institute of Certified Public Accountants of Greece. Eachassociation was asked to randomly select and email questionnaires to 250 of itsmembers.

The questionnaire comprised three parts. Part A gathered demographic data, Part Brelated to the typology of fraud being committed, as well as actions taken by thecompany following the discovery of the fraud, whilst Part C related to the profile of thefraudster. The data analysis presented in this paper relates only to the first two parts(Parts A and B) of the questionnaire.

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As stated earlier, the primary objective of the current study has been to ascertain thetypology of fraud being committed against Greek companies to enable the external,internal and fraud auditors, as well as forensic accountants, to address it moreeffectively both as far as detection, as well as the prevention, is concerned. In addition,the researchers wanted to identify the correlation if any between the implementation ofa code of conduct and/or an audit committee and fraud prevention, as well as actionstaken by the victims post-reporting of suspicion of fraud. More specifically, the researchquestions are:

RQ1. Does the existence of a code of conduct and/or audit committee in Greekcompanies act as a deterrent to fraud?

RQ2. Does the typology of fraud being committed against Greek companies differfrom other countries?

RQ3. Are actions taken by company fraud victims after the reporting of suspicion offraud differs from other countries?

RQ4. Are preventative measures in responding to fraud different from othercountries?

Descriptive and inferential statistics, namely frequencies and Pearson chi-square test(�2) and Monte-Carlo simulation method as tests of independence, were utilized toanalyze the data and answer the research questions.

FindingsA total of 123 usable responses were completed; thus, the response rate is 16.4 per cent.Considering the low response rate experienced by surveys which investigate “sensitive”issues (Cook et al., 2000; Edwards et al., 2002; Keegan and Lucas, 2005 and Weimiao andZheng, 2010), one would argue that the overall response rate of 16.4 per cent can beconsidered as satisfactory.

The demographic characteristics of the survey respondents (Table I) illustrate a widerange of respondents holding various positions with the majority (59 per cent) beinginternal auditors, from various industries, covering both the private and public sector,large- and medium-sized firms.

In responding to RQ1 in an effort to find whether companies which haveimplemented a Code of Conduct and/or Audit Committee had fewer incidents of fraud, itwas found that the Greek companies had implemented either a code of conduct or anaudit committee in significant percentage of 76.4 (n � 94) and 72.4 (n � 89), respectively.Using chi-square test (�2) and Monte-Carlo simulation method as tests of independence,no significant difference was found between the companies that were victimized andthose that were not as far as having a code of conduct is concerned, illustrating thathaving a code of conduct is not a variable that can prevent fraud from being committed.Dewi (2013) noted that an effective audit committee correlates with having less fraud ifthe members of the audit committee have the expertise and are active in their role. Thus,one would need to study in future research the effectiveness of audit committee vis-a-visthe composition, expertise of each member and degree of commitment undertaken bythem in detecting, preventing and investigating fraud. No significant difference wasfound between the companies that had been victimized and those that had not as far ashaving an audit committee is concerned. Future research should investigate the

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comprehensiveness of the codes of conduct implemented, as well as whether they wereenforced effectively and do not simply exist on paper. Finally, the mere existence ofaudit committees is not sufficient to deter or prevent fraud. One would need to look at theaudit committee’s composition and terms of reference to determine if it has had a usefulrole in preventing and investigating fraud in a company.

It is worth noting that companies with no code of conduct were significantly morelikely to have experienced corruption and specifically bribery (Asym. Sign. � 0.00; �2 �12.84), as well as window dressing (Asym. Sign. � 0.01; �2 � 11.98) by managers. Inexamining the effect of audit committee regarding the type of fraud committed, nosignificant difference was found. This finding also warrants further research as onewould need to investigate if the code of conduct had made specific reference to the givingor receiving of bribery, conflict of interest, illegal extortion or other forms of corruption.

It is evident from the fraud victimization surveys of Ernst & Young (2013) andPricewaterhouseCoopers (2014), which are in agreement with the present study inGreece (Table II), that false financial reporting/accounting fraud, theft of data,corruption/bribery, money laundering and theft of cash are considered as the types offraud the Greek companies had fallen victims to during the years (2011-2014). As onewould expect at times of financial hardship, one is looking for easy access to cash.

Considering the size of the victimized company, significant differences were found toexist in industrial espionage (Exact. Sig. (two-side) � 0.033), counterfeit (Asym. Sign. �0.02; �2 � 10.041) and theft of cash (Asym. Sign. � 0.014; �2 � 5.984), with industrialespionage posing a higher risk for larger organizations, whilst the other frauds, stated

Table I.Demographics of

respondents(N � 123)

Demographics of respondents Frequency (%)

Positions of respondentsInternal auditor/advisory 72 58.5Chief accountant/external audit 19 15.4CEO/CFO and other board member 13 10.6Compliance officer and company secretary 12 9.8Other 7 5.7

Type of organization–industryBank and insurance company 37 30.1Other services 28 22.8Manufacturing 21 17.1Accounting firm 15 12.2Retail and wholesale 11 8.9Hotel, automobility industry and constructioncorporation

11 8.9

Legal status of organizationPrivate corporation 69 56.1Public and listed 36 29.3Public but not listed 18 14.6

Size of organizationLarge size 82 66.7Medium/small size (SMEs) 41 33.3

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above, threatened the SMEs. Thus, auditors ought to plan their audit accordingly andmanagement ought to implement measures to prevent those types of frauds dependingon the size of the company.

Taking into consideration the type of industry, the only significant difference foundrelates to money laundering (Asym. Sign. � 0.00; �2 �31.385) and theft of cash (Exact.Sig. (two-side) � 0.033), whereby, as one would expect, threatened the banks andinsurance companies more than the manufacture and retail/wholesale industry.

Recent fraud victimization surveys (Association of Certified Fraud Examiners, 2014;Kroll, 2014; PricewaterhouseCoopers, 2014) indicate that fraud remains a crimecommitted by an offender who works inside an organization rather than a third person.Whilst all three studies have found that lower-level employees are the “fraud leaders”,they have also found that the cost of employee fraud is lower than the cost ofmanagement fraud. Management at the higher levels of the hierarchy tend to beinvolved in frauds that require greater access to organizational assets and are betterpositioned to evade or override controls than lower-level employees. Furthermore,higher-level fraudsters are typically in a better position to circumvent controls, and as itgenerally takes longer for victimized companies to uncover these schemes, the lossesincurred are of higher magnitude than employee fraud (Association of Certified FraudExaminers, 2014). This finding is also supported in the present study, where the numberof incidents of employee frauds was higher than management fraud, but the magnitudeof the cost was lower in the former than the latter.

Bussmann and Werle (2006), summarizing international fraud victimization studies,have identified the following seven types of economic crime being perpetrated againstvictimized companies in other countries:

(1) asset misappropriation (e.g. theft, embezzlement);(2) false pretenses;(3) financial misrepresentation;(4) corruption and bribery;(5) insider trading;

Table II.Types of fraud withgreatest risk inorganizations*

Types of fraud with the greatest risk in organizations N % of cases

False financial reporting/accounting fraud 68 55.3Theft of data/confidential information/cyber crime 65 52.8Corruption and bribery 63 51.2Money laundering 60 48.8Theft of cash 54 43.9Breach of secrets 42 34.1Embezzlement 37 30.1Insider trading 29 23.6Theft of other assets 29 23.6Counterfeit 24 19.5Industrial espionage 14 11.4Other fraud 2 1.6

Note: * Multiple response questions N � 123 (487 responses)

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(6) money laundering; and(7) counterfeiting.

On the other hand, Gottschalk (2010) suggests a classification of financial crime into:corruption, fraud, theft and manipulation. Association of Certified Fraud Examiners(2014) categorized occupational frauds into three categories: asset misappropriation,corruption and financial statement fraud, with each category further broken down intoseveral sub-categories and micro categories, resulting to occupational fraud and abuseclassification system. In the present study, it was decided to concentrate oninvestigating management, employee and third-party fraud.

In response to RQ2, regarding the typology of fraud, the study (Table III) illustratesthat the conflict of interest, theft of assets, theft of cash (through false claims) andcorruption/bribery (taken) were the most common types of fraud committed byemployees, whilst managers undertake window dressing/statement manipulation,conflict of interest, expense accounts and unnecessary purchases. Finally, when it comesto external parties such as customers and suppliers, the most common types of fraudcommitted were dishonoured cheques or cheque forgery, poor quality of goods andservices provided, as well as money laundering. These findings are very similar to thestudy carried out in Cyprus (Krambia-Kapardis and Zopiatis, 2010).

It was also investigated whether there was a relationship between employee andmanagement fraud and the size of the organization or the type of industry. It was found

Table III.Types of fraud

committed inorganizations by

employee,management and

third parties*

Type of fraudEmployees Management

Thirdparties

N (%) N (%) N (%)

Bounced cheques or cheque forgery 16 5.2 3 1.0 37 12.8Conflict of interest 32 10.4 31 10.8 18 6.2Corruption/bribery (taken) 28 9.1 10 3.5 20 6.9Corruption/bribery (offered) 12 3.9 23 8.0 23 7.9Expense accounts 22 7.1 28 9.8 6 2.1Industrial espionage 8 2.6 5 1.7 6 2.1Invoice manipulation 22 7.1 14 4.9 22 7.6Money laundering 6 1.9 8 2.8 29 10.0Overpricing 8 2.6 20 7.0 24 8.3Payroll fraud 6 1.9 4 1.4 3 1.0Petty cash fraud 23 7.5 3 1.0 4 1.4Poor quality of goods/services provided 17 5.5 5 1.7 29 10.0Price fixing/collusion 11 3.6 19 6.6 16 5.5Theft of assets 32 10.4 4 1.4 18 6.2Theft of cash (through false claims) 32 10.4 9 3.1 12 4.1Unnecessary purchases for personal use 14 4.5 29 10.1 3 1.0Window dressing/financial statement manipulation 4 1.3 33 11.5 2 0.7Long-term contracts (e.g. lease contracts) 4 1.3 15 5.2 6 2.1Procurement 19 6.2 23 8.0 12 4.1

Notes: * Multiple response: employees (308 responses); management (286 responses); third parties (290responses)

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that (Asymp. Sign. (two side) � 0.004; �2 � 8.448) large organizations were significantlymore likely to have fallen victims to employee theft of cash through false claims.Furthermore, significant difference was found in SMEs, where management wasinvolved in offering bribes (Asymp. Sign. (two side) � 0.009; �2 � 6.845) and in windowdressing (Asymp. Sign. (two side) � 0,003; �2 � 9.132).

When investigating industries and fraud types committed by employees andmanagement, two differences where revealed. For employee fraud, significantdifferences exist on the variable of corruption/bribery received (Exact. Sign. (two side) �0.003) and for management fraud, significant difference was found only for windowdressing (Exact. Sign. (two side) � 0.017). More specifically, employees working inbanking/insurance industries were found to be more vulnerable to corruption/bribery(receiving) in comparison to employees from other industries. When it comes to windowdressing committed by managers, the manufacturing industry was found to be the mostprone towards such fraud.

Comparing the types of fraud committed in Greece with those in Cyprus(Krambia-Kapardis and Zopiatis, 2010), some differences are noticed. They relate to thesize of the companies in question and the fact that, generally speaking, companies inGreece are larger than in Cyprus. In addition, the Cypriot legal system is based on theEnglish Common Law, whilst the Greek one is based on Civil Law.

According to Association of Certified Fraud Examiners (2014), the majority of victimorganizations lacked the appropriate internal controls to prevent fraud from occurring.In this context, Krambia-Kapardis (2003) found that opportunities which made itpossible for fraud to take place were:

• the weakness of internal controls;• the external criminological factors;• the type of company;• the internal criminological factors; and• collusion.

Looking for the opportunity provided for fraud in the Greek business environment, itwas found that weak internal controls, type of business and collusion were the threecommon issues believed to have facilitated the fraud commitment. Comparing thefindings to the size of the company and type of industry, significant differences exist inweak IT security/access controls for both comparing groups (Asymp. Sign. (two side) �0.019; �2 � 5.503 and Exact. Sign. (two side) � 0.028). The weakness of IT security/access controls tend to be evident more in large companies, accounting, banking andinsurance companies as opposed to other industries.

RQ3 related to the most common actions taken by Greek companies when fraud wasdiscovered and whether the fraudster position in the organizational level (managementlevel) would influence the steps taken by the victim. It was found that internalinvestigation disciplinary actions, audit committee review and immediate dismissalwere the most likely procedures taken when fraud was revealed (Table IV). It is worthnoting that reporting fraud to police or to other regulatory authorities is not an actionadopted by the victimized company, some preferring not even to report the fraud. Asimilar finding was found by PricewaterhouseCoopers (2011), where the Greekcompanies preferred to keep secret the fraud and find solutions internally (i.e. internal

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investigation, recovery of losses, fraudster dismissal) and rarely did they report thefraud. It was also found that in occasions where the fraudster was external to theorganization or did not cooperate in the recovery of assets, the victim would opt to reportto the police, a finding also obtained in the Cypriot study by Krambia-Kapardis andZopiatis (2010).

Furthermore, investigating these findings with the size of the organization as avariable, significant differences were found for internal investigation (Asymp. Sign.(two side) � 0.001; �2 � 10.464), disciplinary actions (Asymp. Sign. (two side) � 0.002;�2 � 9.371), audit committee review (Asymp. Sign. (two side) � 0.013; �2 � 6.123) andimmediate dismissal (Asymp. Sign. (two side) � 0.0499; �2 � 3.844). Thus, indicatingthat the larger companies, as opposed to SMEs, were more likely to carry out internalinvestigations, the audit committee would carry out review of the incident and imposedisciplinary actions or immediate dismissal.

Respondents also were asked to answer if the actions taken when the fraud wasrevealed were affected by the fraudster’s organizational position. It was found thatwhere the fraudster was a senior manager, the action was different to when the fraudsterwas a low-level employee.

Studies (Association of Certified Fraud Examiners; 2014; PricewaterhouseCoopers(2011); PricewaterhouseCoopers, 2014) in other countries have shown that the priority ofthe victimized companies is to recover the losses, a finding not obtained in the presentstudy in Greece. The study found that Greek companies have difficulties (only 30 percent) to recover the fraud losses; thus, the victim opts for other actions post-fraudinvestigation. Because of cultural issues where showing and shaming, as well asreputational damage, are important elements, Greek companies choose to silently closeoff cases rather than proceed legally against the fraudster (where their reputation,as well as the fraudster’s, will be damaged), a finding also noted byPricewaterhouseCoopers (2011). Association of Certified Fraud Examiners (2014) hasfound that there are other “undercover” costs affecting the survival of the victim, after

Table IV.Organization’s

actions after fraudwas identified*

Actions taken by organizations once fraud was identified N (%)

Internal investigation 95 17.4Disciplinary action 63 11.6Reviewed by the audit committee 49 9.0Immediate dismissal 48 8.8Civil action for recovery 47 8.6Warning/reprimand 30 5.5Referred to appropriate authority 27 5.0Voluntary resignation/retirement 27 5.0Settled before the courts 24 4.4Settled out of court 24 4.4Negotiated settlement 22 4.0External investigation 21 3.9Report to the police 21 3.9Insurance claim 19 3.5Encourages individual to resign 15 2.8

Note: * Multiple responses question: N � 123 (545 responses)

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the fraud incident. Table V illustrates that the company’s reputation, staff morale,impaired business relations and loss of share market are important elements thatinfluence the victim’s action after the fraud discovery. This explains, therefore, that theGreek victim organization would carry out internal investigation rather than tarnishtheir reputation and proceed legally, a finding also reported in the Cypriot study(Krambia-Kapardis and Zopiatis, 2010).

No study on fraud victimization would be complete without considering thepreventative measures undertaken by the victim (RQ4). The participants appear to becognizant of the importance of a well-implemented code of conduct, a comprehensive ITsecurity policy and a comprehensive fraud and misconduct risk assessment as measuresin preventing fraud. As far as measures that ought to be taken once a suspicion isreported, the participants find the use of auditing and monitoring plans, as well as theuse of hotlines, for reporting to be useful. Furthermore, the participants appear to be wellversed with the measures (Association of Certified Fraud Examiners, 2014) they oughtto implement to avoid future fraud victimization. However, it is unknown and warrantsfuture research why they did not implement and enforce such measures prior tovictimization.

Policy Implications and conclusionsThe present study found that 86.9 per cent of the respondents had fallen victims tofraudsters in the past three years, a period that the financial crisis had affected allcompanies and individuals in Greece. This victimization rate is significantly higher thanthe 50 per cent reported by Bussmann and Werle (2006) in their international study,higher than the 50 per cent mentioned by Surveilligence et al. (2011) in Czech Republicand Slovakia but similar to the Cypriot study by Krambia-Kapardis and Zopiatis (2010).

The reasons explaining the high percentage of fraud victimization in the twocountries confirm the Krambia-Kapardis (2001) ROP model according to which:

• by deciding to either dismissing quietly or simply taking a disciplinary actionagainst the fraudster, and not reporting the matter to the police, the managementof the victimized company provides the fraudster with the rationalization/justification that the crime committed is not a serious one and the sanction is nota deterrent;

• opportunities to commit the fraud are provided to the potential fraudster throughweak internal controls; and

Table V.Factors affected byfraud in victimizedorganizations*

Socio-economic factors affecting a victimized organization N (%)

Reputation 93 31.2Staff morale 58 19.5Impaired business relations 41 13.8Loss of share market 33 11.1Impaired regulator relations 28 9.4Fear of business disruption 21 7.0Share price 16 5.4None 8 2.7

Note: * Multiple responses question (N � 123, responses � 298)

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• a crime-prone person facing financial difficulties is motivated and decides tocommit the fraud.

Despite the fact that the majority (80 per cent) of companies in the present survey had inplace a code of conduct, as well as an audit committee, they had fallen victim to fraud.This finding contradicts the work of Razali and Arshad (2014), Harrast andMason-Olsen (2007) and Uzun et al. (2004). Thus, one needs to:

• investigate whether the codes of conduct were adequately communicated andimplemented;

• assess the effectiveness and terms of reference, as well as the composition of theaudit committees; and

• whether other exogenous factors such as the economic crisis transformed asystem of non-compliance (Nerantzidis and Filos, 2014; Grose et al., 2014).

The main types of fraud committed were false reporting, theft of data, corruption,money laundering and theft of cash with the banking and insurance industry facingmoney laundering and theft of cash. Large companies experienced industrial espionage,whilst SMEs experienced theft of cash and counterfeit. Window dressing wasundertaken by management, whilst employee fraud concentrated on theft of cash andtheft of assets. The typology of fraud in Greece is the same as one would expect, as thecountry has been facing a serious financial crisis for a number of years now whereemployees need cash and management have a motive to window dress their accounts inan effort to increase capital and finances. The financial crisis followed 14 years ofcontinuous economic expansion, had GDP shrinking to its 2002 level (Kondilis et al.,2013), population living under extreme financial pressure with 27.7 per cent of itspopulation at risk of poverty and social exclusion. These consequences had a negativeimpact on public health of the Greek population trying to make ends meet (Nena et al.,2014) and of course created a motive for committing a fraud.

As Krambia-Kapardis and Zopiatis (2010) noted, once fraud is reported, the Greekand Cypriot fraud victims choose to address the crime internally rather than exposethemselves and the victim to legal or other external investigation, which will tarnishtheir reputation. This method also minimizes indirect non-financial costs such asemployee morale, corporate and brand reputation and business relations, a findingsupported by PricewaterhouseCoopers (2011).

Although Greek companies are aware of fraud risk and its consequences throughestablishing and developing specific anti-fraud procedures and systems, fraud remainspervasive. Thus, the study results show that the controls implemented will not besufficient to mitigate the risk of economic crime. As prevention is better than cure,proactive actions at the prevention stage should be undertaken by regulators and Boardof Directors. Krambia-Kapardis and Zopiatis (2010, p. 207) propose that:

[…] companies ought to be encouraged not only to actually implement a code of conduct andset up an audit committee but also, to ensure the former is properly enforced and the latter isencouraged to assume its role and responsibilities as set out in the relevant legislation and theCode of Corporate Governance.

Fraud and economic crime, in general, are not going to be completely eliminated, nomatter what measures and procedures are adopted and implemented by business, as the

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fraudster will always find the opportunity (having the motive and using rationalizations)to commit it. Thus, the development of a corporate culture with an emphasis on ethicalbehaviour and the appropriate tone at the top could act as a deterrent to fraud beingcommitted.

Despite the low response rate, the survey has revealed that company fraudvictimization needs to be addressed by stakeholders to reduce its incidence. Given thelack of trust in businesses (PricewaterhouseCoopers, 2014), senior management ought toadopt a role model approach in setting ethical behaviour, with the appropriate “Tonefrom the Top” and the determined proactive and reactive measures which will preventfraud from being committed.

Notes1. Central Intelligence Agency (2013), The Gross World Product was estimated to be 74.31

trillion dollars. See World Economy Profile 2014, www.indexmundi.com/world/economy_profile.html (accessed in 6 April 2016).

2. According to The World Bank, the GDP 2013 is $241.7bn, available at: http://data.worldbank.org/country/greece (accessed in 22 December 2014).

3. For example, tax evasion/shadow economy, reduction of economic growth, investments,society poverty, etc.

4. Legislation �. 4254/2014 (85/7.4.2014) New legislation Protecting the Whistleblower forCorruption Cases www.transparency.gr/wp-content/uploads/2014/04/%CE%9D%CE%95%CE%95%CE%A3-%CE%94%CE%99%CE%91%CE%A4%CE%91%CE%9E%CE%95%CE%99%CE%A3_-WHISTLEBLOWING1.pdf and www.transparency.gr/wp-content/uploads/2014/04/%CE%9D%CE%95%CE%95%CE%A3-%CE%94%CE%99%CE%91%CE%A4%CE%91%CE%9E%CE%95%CE%99%CE%A3_-WHISTLEBLOWING1.pdf(accessed 9 February 2015).

5. See PricewaterhouseCoopers, 2014 and KPMG, 2013b.

6. According to the EU Commission, 2005, the definition of what constitutes SMEs are thosewith less than 250 employees and annual turnover less than €50mor less than €43 annualbalance sheet total.

7. www.benefitsinc.com/BusinessFailures.pdf (accessed 7 February 2015).

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Global Economic Crime Survey, available at: www.pwc.ch/user_content/editor/files/publ_adv/pwc_global_economic_crime_survey_07_e.pdf (accessed 21 December 2014).

Corresponding authorMaria Krambia Kapardis can be contacted at: maria.kapardis@cut.ac.cy

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