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Economic crime at pandemic level in SA - survey

Mar 01 2016 16:22
Carin Smith

Cape Town - The stark reality is that economic crime is at a pandemic level in South Africa and no sector or region is immune from it, Louis Strydom, forensic services leader for PwC Africa, said on Tuesday.

More than two in three South African organisations (69%) have been the victim of economic crime in the past 24 months, according to PwC’s latest biennial Global Economic Crime Survey.

Globally, the overall rate of economic crime reported has fallen for the first year since the financial crisis, but only marginally – to 36% from 37% in 2014. The SA survey rate of 69% has remained unchanged from 2014 and is much higher than the figure reported by organisations in the rest of Africa.

The survey found that asset misappropriation remains the most prevalent form of economic crime (68% of respondents), followed by procurement fraud (41%) and bribery and corruption (37%). Cybercrime has risen to the fourth most reported type of economic crime in SA, with 32% of organisations affected - on par with the global average.

READ: Impact of crime on SA business at dire levels

South African organisations were reported as more than twice as likely to be defrauded by vendors, compared to the rest of the world.

Over half (56%) of SA respondents said that top management would rather allow a business transaction to fail than have to use bribery. While 15% of respondents - mainly private sector organisations - were asked to pay a bribe in the past two years, another 12% believe they lost an opportunity to a competitor who may have paid a bribe. More than half of SA respondents believe it is "likely" that they will experience bribery and corruption in the next two years.

SA participants in the survey also exhibited significantly low levels of confidence in local law enforcement agencies. About 70% of organisations indicated they believe agencies are inadequately resourced and trained to investigate and fight economic crime. This is almost twice the global rate of 44%.

Of the 6 337 survey participants in 115 countries, 232 - from a broad spectrum of industries - were in SA.

“Economic crime remains a serious challenge to business leaders, government officials and private individuals in SA," said Strydom.

“The fact that developed countries are included in the list of the top ten countries reporting the highest rates of economic crime brings home a clear message: economic crime is a global issue and one that affects developed markets as much as it does emerging ones."

Economic crime costs businesses billions of dollars. While more than half of the global organisations surveyed reported having lost less than $100 000 (about R1.6m) to economic crime over the last 24 months, only 43% of South African organisations could make that claim. Almost a fifth of local respondents experienced losses of between $100 000 (about R1.6m) and $1m (about R15.7m), and one in four respondents indicated having suffered losses of more than $1m (about R15.7m).

Regionally, lower levels of economic crime were reported in North America (37% vs 41%), Eastern Europe (33% vs 39%), Asia Pacific (30% vs 32%)) and Latin America (28% vs 35%). The rate of economic crime rose in Africa (57% vs 50%), Western Europe (40% vs 35%) and the Middle East (25% vs 21%).

About 68% of French organisations surveyed and 55% of those in the UK reported high increases in the rate of economic crime in the past 24 months - both up 25% when compared to 2014. About 61% of Zambian respondents reported economic crime - up 31% over 2014.

READ: Concern over business crime syndicates

Globally for the first time since 2009 external actors (46%) exceeded internal actors (45%) as the dominant profile of fraudsters acting against an organisation. Reports of senior management perpetrating economic crimes against the organisations they work for more than halved from the previous survey (from 41% to 15%), while middle management appears to have taken centre stage, with 39% of fraud being perpetrated by internal actors emerging from this band.

More than half of organisations (57%) believe it is likely that their organisations will experience cybercrime in the next 24 months. Most companies are still not adequately prepared for or even understand the risks faced, with only 35% of organisations reporting they have a fully operational cyber incident response plan in place.

Only 50% of money laundering and terrorist-financing incidents in financial services organisations were detected by system alerts, survey participants indicated. The undermining impact of poor data quality and skills shortages in SA became clear with one in three SA organisations experiencing difficulty in sourcing personnel with skills in anti-money laundering or combating the financing of what is termed terrorism.

"With a greater focus in recent years on the responsibility of management and boards insofar as good corporate governance practices are concerned, ignorance of matters affecting your company - and in particular a passive approach to detecting and preventing economic crime – is an open invitation for disaster, not only from a corporate perspective but on a personal level as well,” cautioned Trevor White, partner, forensic services and Global Survey Leader at PwC.

ALSO READ: R10.8bn flows out of SA illegally

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pwc  |  crime  |  business  |  sa economy

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