Digital innovation and technology have given rise to new attack surfaces for economic criminals and fraudsters, resulting in the rate of instances growing at exponential levels, PwC’s 2018 ‘Global Economic Crime’ survey shows.
The survey, released on Thursday, notes that just under half of organisations (49%) globally report that they have experienced economic crime in the past two years and that the other 51% could have fallen victim and been unaware.
“One of the most powerful weapons in a fraudster’s armoury is a lack of awareness within organisations. It is time for business to recognise the true nature of the threat: not just as a nuisance or cost of doing business,” notes PwC forensic services partner and South Africa survey leader Trevor White.
The findings show that South African organisations continue to report the highest instances of economic crime in the world (77%), followed by Kenya (75%) and France (71%). Half of the top ten countries are in Africa.
The broadest definition of fraud is criminal deception intended to result in financial gain. These acts of crime could be from customers trying to defraud a company, outsiders using technology to hack into the company systems and from within the organisation itself, notes White.
He warns that companies who focus their efforts on thwarting on-affiliated fraudsters, “risk being cleaned out from the inside”.
Fraud risk has emerged with as much prominence from within organisations as from the outside, says White. As such, a more holistic and collaborative view of the organisation is necessary to combat fraud.
He believes that, “focusing on human behaviour offers the best opportunity for preventing or reducing fraud because, ultimately, machines don’t commit fraud – people do”.
CONDITIONS FOR FRAUD
The PwC survey points to a “fraud triangle” – three conditions that influence an act of fraud. PwC suggests that dealing with these conditions will significantly reduce the potential for fraud because it works towards removing the environment that enables fraudsters.
The report states that fraudulent acts start with pressure, “generally related to an internal issue”.
Then, if an opportunity presents itself, the person will usually wrestle with it emotionally. “The last piece of the puzzle, which enables them to move from thought to action, is rationalisation,” says White.
He states that eliminating opportunity is about more than finding the culprits,” it is about addressing the actual culture within the organisation. “With pressure, organisations need to ask themselves what the drivers of pressure within the business are, and are expectations aligned with reality.”
Further, rationalisation happens when the “person who decides to commit an act of fraud against their own employer has reconciled their planned actions to their own personal code of ethics”. This, says White, also speaks to corporate culture and understanding the environment that governs employee behaviour.
The report states that since fraud does not happen through the agency of a single factor, businesses have to find the right mix of technology and people measures to counter it.
“Many businesses that have focused primarily on technology, resign themselves to the belief that a certain amount of fraud is simply part of the cost of doing business. It doesn’t have to be like that,” says White.
He points out that, based on the scale of losses caused by internal fraud, yearly, an investment in understanding and addressing corporate culture may offer “a surprisingly high return, assuming you already have a well-established control environment”.