Whistle-blowers still best at finding fraud-survey

By Emily Chasan

NEW YORK, Oct 16 (Reuters) - Whistle-blowers still uncover the most incidents of corporate fraud even as companies invest in financial controls, according to a study from auditing firm PriceWaterhouseCoopers [PWC.UL] released on Tuesday.

The study polled 5,400 executives in 40 countries, with respondents reporting total losses of about $4.2 billion from fraud.

PwC found that 29 percent of frauds were detected through whistle-blower hotlines and internal tip-offs, with an additional 14 percent discovered through external tip-offs.

"The less-tangible control measures are more difficult to measure so people think they are less important, but I think our survey shows that they aren't," said Steven Skalak, global investigations leader at PwC.

The internal audit department was the second-biggest fraud detector, detecting about 19 percent of all frauds, the survey showed.

"Controls by themselves just don't seem to be sufficient," Skalak said. "A company has to have an appropriate culture in combination with appropriate controls to do a good job at preventing and detecting the economic crimes."

The internal audit department had been responsible for finding about 26 percent of frauds in the 2005 survey.