How to prevent frauds and protect investors and creditors
On October 7th, 2014, Business Support Network, Association of Accountants and Auditors of Serbia and Journalists’ Association of Serbia organized a round table discussion on the topic “How to prevent frauds and protect investors and creditors”
The representatives of domestic companies-producers brought to attention large legan uncertainty in the business environment. Zoran Ilić, co-owner and director of Biomelem company, operating in the Serbian market for more than 25 years, stated that his company’s losses due to frauds over the years are measured in hundreds of thousands of EUR, and that the most blame falls on the faulty regulations that was never designed to enable growth of small enterprises. He added that in Serbia there are small companies capable of producing high-quality products, but that the state must recognize companies that possess such capacities and protect them from dishonest business practices.
BSN consultant Dragoljub Rajić noted that since 2008 up to now there were over 19.500 recorded scams by fictional companies who ordered goods without paying. Total damage from these activities is estimated at 255 million EUR. Also, protection for the victims of the fraud is almost totally non-existent, and in only 2.8% of cases the victims were able to obtain some form of compensation for their damage.
Blagoje Novićević, representative of Association of Accountants and Auditors of Serbia stated that frauds are especially benefiting from bad financial reports, a consequence of bad Law on Accounting. The law in question, introduced in 2013, distanced accounting practices in Serbia from international financial reporting standards. As a consequence, we have imprecise financial reports and the need for costly auditing process which have become necessary for international business activities. Due to that, he stated, it is not strange that the foreign investors come to Serbia due to the authority of the Government, and not based on the analysis of the financial reports.
Speaking of the expenses that the implementation of the new Law on Accounting brought to the accountants and the economy, President of the Association of Accounting Services Providers, Mr. Miodrag Perić said that the costs for the average accounting agency are roughly 32.000 EUR. On the level of the whole economy, those expenses even reach 250 million EUR.
Explaining the expenses caused by the new Law on Accounting, Mr. Dušan Milutinović, Financial Director of Hemofarm company said that the primarily costs come from the necessary organizational changes in the company, and also due to the implementation of new software systems. Regarding the topic of business frauds, he said that the state should control the legal period for payments more rigorously, and even consider shortening them.
Representative of the Delegation of German Industry and Commerce in Serbia, Mr. Milan Vučković agreed that the financial reports in Serbia are lacking, noting that since the year 2000, 118 companies complained on the incorrect information in the financial reports of the companies they bought in the privatization process. He stated that during the purchase of domestic companies in Serbia, foreign partners usually order two independent audits instead of one, increasing their expenses by 40,000 to up to 100,000 EUR, due to mistrust in the financial reports, especially in the state-owned companies.
Mahmud Bušatlija, foreign investment consultant stated that the main issue in Serbia is that the laws are made without consultation with the users of those laws. In developed countries, he said, it is normal that the laws are made in cooperation with those who are going to be affected by them. Simply making a law by politicians is never politically profitable, and does not benefit the country.
In the future period, BSN will keep insisting on creation of new Law on Accounting, made with the participation of professional associations and representatives of domestic and foreign investors. This law should be made in the cooperation with European Accounting Association, which would ensure harmonization with international accounting standards and reduce the possibilities for frauds in financial reports.