Two years ago PricewaterhouseCoopers (PwC) revealed in their 2014 Global Economic Crime Survey that 69% of respondents indicating they had experienced some form of economic crime in the 24 months preceding the survey. In the latest edition of the professional services firm’s biennial survey, released on Tuesday, that trend has remained exactly the same.
Two-thirds of South African respondents again report being victims of economic crime, while 32% of organisations have experienced cybercrime. In addition, 70% of respondents view local law enforcement as inadequately resourced to fight economic crime.
PwC puts the global average for economic crime at 36%. South Africa’s result reflects the highest rate of economic crime in the world, placing the country at the top of the chart again. Since 2005 South African economic crime has been way above the global average, which decreased slightly in 2016 from 37% in 2014.
PwC surveyed 6 337 firms in 115 countries, 232 in South Africa. Of these, 83% were in the private sector. Asset misappropriation was the most prevalent form of crime reported, followed by procurement fraud and then bribery.
The main aim of the survey, according to PwC, 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.
Overall, the PwC report finds that business detection and response plans are not keeping pace with the level and range of threats now facing organisations, with a potential trend of too much being left to chance and such crime discovered by accident rather than intent.
“Economic crime remains a serious challenge to business leaders, government officials and private individuals in South Africa,” said Louis Strydom, forensic services leader for PwC Africa. “When compared to the global statistic of 36%, we are faced with the stark reality that economic crime is at a pandemic level in South Africa. No sector or region is immune from economic crime.”
Download the 2016 Global Economic Crime Survey – South Africa focus.
Developed and developing markets affected
New entrants into the top 10 include France (68%) and the UK (55) – both up 25% from 2014. However, 61% of both Kenyan and Zambian respondents reported widespread economic crime, in Zambia’s case resulting in a 31% increase over 2014. This shows that both developed and developing countries are at risk, said Strydom. “Economic crime is a global issue and one that affects developed markets as much as it does emerging ones.”
In South Africa, most top types of economic crime were higher than the individual global averages, although some decreased in the last two years in terms of the country’s 2014 result:
|Type of economic crime||South Africa 2016||Global average 2016||South Africa 2014|
|Bribery and corruption||37%||24%||52%|
|Human resources fraud||28%||12%||42%|
According to the survey findings, South Africans also exhibited significantly low levels of confidence in local law enforcement agencies, with 70% of organisations believing agencies are inadequately resourced and trained to investigate and fight economic crime. This is much higher than the global rate of 44%.
A costly business
Economic crime costs businesses billions of dollars, said PwC. While more than half of the global organisations surveyed reported losses of under US$100 000 to economic crime over the last 24 months, only 43% of South African organisations could say the same. Almost a fifth of local respondents experienced losses of between $100 000 and $1-million, and one in four respondents indicated losses of more than a million, while 2% lost over $100-million.
For the most part, perpetrators come from outside the organisation. South African organisations were reported to be more than twice as likely to be defrauded by vendors compared to the rest of the world. This highlights the need for vigilance against this kind of risk. “Complacency at any level will render your business exposed, because both internal and external perpetrators have a very distinct common trait – they are not part of your organisation, they are against it,” noted PwC.
Most crimes were detected through reporting of suspicious activities, followed by internal audits. Whistleblowing increased from 6% to 8%, while fraud risk management made an impressive leap to 17% from 8%. This is not good enough, said PwC, adding that in the past 24 months 22% of organisations did not carry out any fraud risk assessment whatsoever.
Cybercrime incidents increased by 23% compared to 2014. More than half of organisations (57%) believe it is likely that their organisations will experience cybercrime in the next 24 months. Preparation for such an attack, though, is woeful – only 35% of organisations say they have a fully operational cyber incident response plan in place and only 34% have personnel who are trained as first responders.
In terms of bribery and corruption, 56% of South African respondents say top management would rather allow a business transaction to fail than resort to bribery. More than half of South African respondents believe it is ‘likely’ that they will experience bribery and corruption in the next 24 months – 15% of respondents, mainly from the private sector, reported that they had been asked to pay a bribe in the past two years, and another 12% believe they lost an opportunity to a competitor that may have paid a bribe.
Anti-money laundering (AML) measures also need beefing up, said PwC, especially in terms of data quality and skills, as the lack of these undermines the efficacy of AML systems. Only 50% of money laundering and terrorist-financing incidents in financial services organisations were detected by system alerts. A third of South African organisations experienced difficulty in sourcing suitably skilled personnel.