The rate of economic crime in South has decreased in the last two years, but instances of higher-value fraud have increased considerably, professional services firm PwC points out. 

The firm on Tuesday released the seventh South African edition of its Global Economic Crime and Fraud Survey, titled ‘Economic Crime: when the boardroom becomes the battlefield’.

The survey took into account the opinions of 245 respondents, 71% of whom were C-suite executives.

PwC said the reported economic crime rate had decreased from 77% in 2018 to 60% in 2020; however, this still meant that more than a third of South African respondents were falling prey to this phenomenon.

South Africa’s economic crime rate, according to the survey, also remained significantly higher than the global average reported rate of economic crime at 47%.

The economic crime survey found that there had been an increase in instances where fraud was perpetrated by senior management – up from 20% in 2018 to 34% in 2020.

PwC questioned whether fraud by middle management had declined or whether the perpetrators might have been promoted to senior management level.

Further, accounting or financial statement fraud increased from 22% in 2018 to 34% in 2020.

The survey respondents reported that they had suffered a combined loss of about $1.7-billion as a result of economic crime in the last 24 months.

This year, customer fraud emerged as the most prominent economic crime in South Africa, followed by bribery and corruption, financial statement fraud and cybercrime.

Most fraud types declined in South Africa, including procurement fraud and asset misappropriation, while the top four types of economic crime increased.

One in five South African respondents cited bribery and corruption as the economic crime that had the most disruptive impact and almost half of the companies surveyed were themselves accused of bribery and corruption.

PwC South Africa forensic services partner Trevor White commented that private sector actors had escaped scrutiny in the past, but that this has changed in the past couple of years.

He explained that owing to the size or extent of the economic crime or fraudulent activity and the involvement of senior management, incidents were much more widely reported on in the press and for much longer periods of time.

“The results of our 2020 Global Economic Crime and Fraud Survey have turned up one major surprise, that being that the percentage of respondents who had experienced economic crime in South Africa declined for the first time in the last decade.

“However, there was no surprise in the finding that bribery and corruption and financial statement fraud are still among the more prominent types of economic crime reported. This, combined with increased involvement of senior management in perpetrating such acts, has resulted in a sharp increase in the value of losses incurred as a result.”

To survive the catastrophic impact of economic crime, PwC said organisations needed to be proactive, agile and resilient, to react in an appropriate manner and to do so swiftly.

Organisations adopting the right approach to dealing with fraud would be able to use these occurrences to emerge stronger, it suggested.

The top ten countries reporting the highest rates of economic crime are India, China, South Africa, Kenya, the US, the UK, Uganda, Mexico, France and Ireland.

PwC said it was interesting to note that, despite the high rates of economic crime, 38% of the global participants in PwC’s twenty-third annual Global CEO survey, published earlier this year, still identified China and India as the most important countries to their organisations’ overall growth prospects over the next 12 months.

Further, the firm found that 60% of South African respondents said their organisation had emerged stronger following its address of a disruptive incident.

Worryingly, 42% of respondents did not conduct an investigation into instances of economic crime or fraud, while about 59% of incidents were not disclosed to the board, 66% of incidents were not disclosed to regulators or law enforcement and 72% of incidents were not disclosed to the company’s auditor.

PANEL OPINION

Regulator, the Financial Sector Conduct Authority divisional executive Brandon Topham said people often felt unvalued and underappreciated in organisations, making it easier for them to commit economic crime or turn a blind eye to fraudulent instances, because they felt the company owed them something or they simply did not care.

Further, in some cases employees were manipulated by middle management to participate in fraudulent activity or to keep quiet about it, out of fear of losing their jobs.

Financial Mail editor Rob Rose noted that he had seen perpetrators set out to enrich themselves, while others tried to cover financial gaps as an issue of pride in the organisation or division that they manage.

He added that another problem South Africa experienced was that the authorities that are meant to investigate instances of economic crime, were sometimes also corrupt.

Rose explained that the stagnant economic growth in the country was also tempting organisations to forge financial numbers to keep business going.