Economic crime still serious


Economic crime remains a serious challenge to business leaders, government officials and private individuals in South Africa with 69% experiencing some form of economic crime over the past two years, compared to 37% of global respondents.

This is the first time since 2005 that the prevalence of economic crime has increased in South Africa, according to the findings of the 2014 PricewaterhouseCoopers (PwC) Global Economic Crime Survey.

Louis Strydom, PwC Forensic Services Leader for Africa, says: “Like a stubborn virus, economic crime persists despite ongoing efforts to combat it. No ongoing organisation of any size, anywhere in the world is immune to the impact of crime. Those committing economic crime have adapted to shifting global conditions like reliance on technology and the expansion of emerging economies.

“Even worse than the direct financial impact of economic crime is its threat to a wide range of business systems that are the lifeblood of corporate operations. Economic crime damages internal processes, erodes the integrity of employees and tarnishes reputation.”

The 2014 ‘Global Economic Crime Survey’, which is carried out every two years, was conducted among 5,128 senior representatives from over 93 countries during the fourth quarter of 2013. In South Africa, 134 organisations across 17 industries took part in the survey. The main aim of the survey is to inform South African business leaders about developments in the continuously changing landscape of economic crime in the country and to encourage debate around strategic and emerging issues in this sphere.

The survey found that asset misappropriation remains the most common form of economic crime, reported by 77% of respondents. It is followed by procurement fraud (59%), bribery and corruption (52%), human resources fraud (42%) and financial statement fraud (35%). Bribery and corruption has been the fastest growing economic crime category in South Africa since 2011.

The exact direct loss associated with economic crime is difficult to assess. “Organisations often fail to grasp the full financial impact of economic crime until after it has occurred – sometimes well after. This is especially true of crimes ostensibly committed on behalf of the organisation,” says Strydom.

There has also been an alarming shift in the perpetrator profile in South Africa since 2009, with senior management now regarded as the main perpetrator of economic crime committed by insiders.

For the first time this year, the survey measured procurement fraud, reported by almost 60% of South African respondents. Procurement fraud is seen as a double threat, victimising businesses both in their acquisition of goods and services and in their efforts to compete for new opportunities. Vendor selection was the step in the procurement process that was targeted mostly by fraudsters, although all steps appear to be vulnerable to fraud. “Organisations should pay attention to safeguarding each step in the procurement process,” warns Strydom.

South Africa has experienced a higher incidence of every category of economic crime in the past 24 months, with the exception of intellectual property infringement and mortgage fraud. The survey results indicate that bribery and corruption is considered by respondents to be the highest risk to organisations when doing business globally. More than a quarter of respondents also reported that their organisations had been asked to pay a bribe in the last 24 months.

Out of all industries, money laundering affects the financial services industry the most. Over one quarter (27%) of global and South African respondents in the financial services industry reported having experienced the crime of money laundering in the last 24 months. All respondents considered damage to corporate reputation as the most serious consequence of money laundering.

It is interesting to note that only 8% of South African organisations reported having experienced a competition law infringement in the past 24 months. Three percent of respondents indicated that they had lost between USD1-100 million as a result of competition infractions in the past 24 months. Competition law is a complex economic crime that is poorly understood by South African organisations. A number of respondents were unsure as to whether their organisations had even experienced such a contravention. “Education and awareness regarding the competition law framework should therefore be a priority for companies in South Africa,” adds Strydom.

Forty-two percent of South African organisations reported that they experienced some form of human resources fraud during the past 24 months. This is almost three times the prevalence reported by global respondents.

Where does economic crime occur?

Regionally, economic crime is most pervasive in Africa, where 50% of respondents say they have been victims, though down from 59% in 2011. It is followed by North America, 41%, Eastern Europe, 39%, Latin America and Western Europe, each 35%, Asia Pacific, 32%, and the Middle East, 21%.

South African respondents reported the highest level, 69% up from 60% in 2011. Economic crime is also growing rapidly in the Ukraine, 63% up from 36% three years ago, Russia, 60% (37%:2011), and Australia 57% (47%:2011).

Which industries are most affected?

By industry, economic crime is most prevalent in the financial services, retail and consumer and communications sectors. Almost half the respondents (50%) in each industry said they have been victims of crime. Financial services are victims of high levels of cybercrime and money laundering, while retail and consumer and communications have suffered mostly from theft.

Perpetrators of economic crime

The survey shows an alarming shift in the profile of the typical perpetrator in South Africa since the 2009 survey, with 41% of all internal fraud being committed by senior management. The survey results show that the typical internal fraudster is male, aged between 31 and 40, has worked for his employer for more than 10 years and has acquired a first university degree.

Detecting fraud

The survey found that 80% of economic crime in South Africa’s organisations is detected through corporate channels, such as the reporting of suspicious transactions, internal audit or fraud risk management and the rotation of personnel. It is encouraging to note that 51% of companies in South Africa carry out formal risk assessments annually and are reaping the benefits of a pro-active approach to managing fraud risk.

However, since 2007 there is a consistent decline in the effectiveness of formal whistle-blowing systems and internal tip-offs in detecting fraud. “This trend is worrying and may be related to senior management committing more fraud. Employees are less willing to blow the whistle if the fraudster is more senior than the whistle blower,” comments Strydom.

Once fraud has been detected, it is critical that an organisation takes, and is seen to take, appropriate action. Less than one in ten South African respondents (8%) and 11 % of those globally confirmed their organisations would ‘wait and see if further indications of potential fraud in the same area may arise.’ Strydom says this is concerning as decisive action such as investigating in cases where the event and/or perpetrator are known should be taken immediately.

Strydom concludes: “The survey finds that respondents expect economic crime to continue to rise in the future among nearly all categories, a result also found in PwC’s recent 17th Annual CEO Survey.

“CEOs globally also recognise the impact of economic crime with more than half citing the ‘lack of trust’ as a key issue in the marketplace. Bribery and corruption continue to be ranked among CEOs’ top concerns.”


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