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Ethical breaches common

A study by EY and the Hungarian Chamber of Commerce and Industry suggests that companies need a code of ethics.

Embezzlement and other dishonest practices by employees are more common than Hungarian business leaders think, according to a study published on January 26 and conducted by EY and the Institute for Economic and Enterprise Research of the Hungarian Chamber of Commerce and Industry.

“Many corporate leaders believe that their businesses are not effected by corruption or ethical offences, so not many of them would opt for extra expense for preventing this problem,” Ferenc Biró, partner for fraud investigation and dispute services at EY Hungary said.

The findings of the research, entitled “Integrity and Corruption Risks in the Hungarian Corporate Sector 2015”, reveal that 70% of Hungarian SME leaders believe that preventing and remedying employee misconduct is unnecessary, because they have a small number of workers and because they claim to trust their colleagues.

Less than one-fifth of SMEs said they feel the need to prevent ethical offences, and less than one-tenth of them have a code of ethics. Less than one-fifth of the SMEs queried said they found misconduct to be endangering their businesses.

While many SME managers and owners believe that no offenses have happened on their watch, EY maintained that, based on international experience, this attitude is not realistic.

The international research of Association of Certified Fraud Examiners (ACFE) found that, despite the perceptions of Hungarian SMEs, it is the smaller companies that see the highest rate of misconduct and abuse of power. Twice as many cases of stealing, embezzlement, forgery and abuse of power in the case of payroll calculation happen at SMEs as compared to larger companies, EY said.

“The majority of Hungarian companies are unaware of how much serious harm can be caused through abuse of power, or that the consequent application of some simple tools can provide greater security, which leads to money savings,” Lívia Fábián, senior manager, fraud investigation and dispute services at EY said.

Approximately 13% of Hungarian companies make an effort to identify and control activities and positions accompanied by high corruption risks, which is a drop compared to last year, when one-quarter of respondents said they make such efforts, the research showed.

One-third of the leaders queried reportedly said that controlling whether their employees have interests in other businesses is unnecessary, as their colleagues have no interests outside the company.

According to the survey results reported, 39% of company managers think that the risk of their employees giving out confidential corporate information to third parties is greater than the risk of external data theft. Conversely, compared to last year’s findings, twice as many respondents said they were afraid of external invaders stealing data from the company, and fewer thought there was a risk of departing employees doing harm to the company.

The research also found that 70% of Hungarian companies have no code of ethics, which means that Hungary is lagging behind the international average, where more than three-quarters of companies have such ethical guidelines, EY said, citing the findings of ACFE.

“Though the presence of a code of ethics is not the complete answer, when accompanied by appropriate controlling mechanisms it can be a useful tool for fighting against abuse of power,” a statement by EY said.