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More managers commit crime - survey

Dec 01 2011 08:15 Sapa

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Johannesburg - South African companies have reported a significant increase in tax and market fraud, a Global Economic Crime Survey released on Wednesday showed.

"This increase is also reflected in a shift in the South African perpetrator profile towards senior management," said Louis Strydom, head of forensic services practice at PwC, the company that conducted the survey.

In 2011, 36% of internal economic crimes were carried out by senior management compared to only 17% in 2009, he said.

"These economic crimes require access to sensitive information and more sophisticated know-how which senior management usually possess.

"These crimes have previously not been as prevalent in South Africa and the increase could suggest that organisations need to revisit their fraud risk management frameworks to ensure that they are able to deal with the emerging threats," Strydom said.

The survey conducted every two years fielded 3877 senior representatives from more than 70 countries. In South Africa, 123 organisations across 19 industries took part.

Strydom said the survey indicated that economic crime remained a challenge for business leaders worldwide, particularly in South Africa where 60% indicated that they had experienced some form of economic crime in the 12 months preceding the survey.

The global average was 34%.

"On the positive side, the survey found that this overall prevalence of economic crime in South Africa has decreased from 83% in 2005," he said.

The drop in the overall incidence of economic crime was as a result of corresponding decreases in the misappropriation of assets, bribery and corruption, and financial statement fraud, Strydom said.

Steady decrease

These three crimes had decreased steadily over the past six years and this could be attributed, among other things, to internal fraud risk management frameworks making progress in South Africa and getting better at detecting and preventing economic crime.

Countries that reported high levels of fraud at 40% or more included Kenya, South Africa, Australia and New Zealand, suggesting that fraud was not only endemic in developing countries.

Those that reported low levels of fraud at 25% or less were Japan, Indonesia, Italy and Greece.

"However, these results can be affected or distorted by ineffective fraud detection methods or the reluctance of organisations in those countries to report fraud," Strydom said.

For the first time since PwC conducted the survey, economic crime in South Africa was being committed equally by internal and external perpetrators.

Globally, the majority of crimes were still being committed by internal parties.

"Overall, South African organisations resorted to criminal and civil action more often than their global counterparts.

"However, with regard to the most serious economic crimes committed by insiders, South African companies took no action in 6% of cases, opted for employee transfers in 3%, or warnings in 14% of cases," Strydom said.

This was worrying as it suggested that these perpetrators still remained within the organisation and might be able to commit further transgressions.

The survey also found that cybercrime had emerged as a significant contributor to economic crime losses in South Africa and was considered the fourth most common economic crime after the misappropriation of assets, bribery and corruption, and financial statement fraud.

About 59% of organisations said they monitored their employees' use of social networks.

"While social media sites such as Facebook, Twitter or LinkedIn may not be a direct source of cybercrime, social media sites can be used to collect information about a targeted individual, to research certain staff members or to install malware onto the user's computer, making the cybercrime more effective," Strydom said.

"Advances in technology are fast-paced, as are fraudsters. Those organisations ready to understand and embrace the risks and opportunities of the cyber world will be the ones to gain competitive advantage in today's technology-driven environment," said Strydom.

The survey was the sixth to be conducted by PwC, the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services.

It was conducted between June and November 2011. 

businesses  |  corruption  |  fraud
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