South African businesses continue to report the highest instances of economic crime in the world – reaching the highest level over the past decade, according to PwC’s biennial Global Economic Crime Survey published on Tuesday (27 February).
Local companies that have experienced economic crime is now at a staggering 77%, followed in second place by Kenya (75%), and thirdly France (71%). With half of the top ten countries who reported economic crime coming from Africa, the situation at home is more than dire, PwC said.
The Global Economic Crime and Fraud Survey examines over 7,200 respondents from 123 countries, of which 282 were from South Africa.
Other key findings of the report include:
- At 77% South Africa’s rate of reported economic crime remains significantly higher than the global average rate of 49%;
- Asset misappropriation continues to remain the most prevalent form of economic crime reported by 45% of respondents globally and 49% of South African respondents;
- One of the new categories of economic rimes was that of “fraud committed by the consumer”. It is the second most reported crime in South Africa at 42% and takes third place globally at 29%;
- 35% of South African respondents lost more than $100,000 (+/- R1.2 million) to what they regarded as the most disruptive economic crime to affect them, with 1% reporting losses of greater than $100 million (R1.2 billion).
“Economic crime continues to disrupt business, with this year’s results showing a steep incline in reported instances of economic crime. At 77% South Africa’s rate of reported economic crime remains significantly higher than the global average rate of 49%,” said Trevor White, PwC Partner, Forensic Services and South Africa survey leader.
“However, this year saw an unprecedented growth in the global trend, with a 36% period-on-period increase since 2016.”
PwC said it is also alarming to note that 6% of executives in South Africa (Africa 5% and Global 7%) simply did not know whether their respective organisations were being affected by economic crime or not.
“We believe that these jumps in reported crime are being driven by a heightened state of fraud awareness by respondents, and in this lies the silver lining,” said White.
“We have seen paradigm shifts in the way that businesses are being run. Notably, the accountability for fraud and economic crime has moved into the executive suite, with the C-suite increasingly taking responsibility, and the fall, when economic crime and fraud occur.
“Organisations are beginning to shed their denial complex regarding the many blind spots they have in identifying fraud and are learning how to address them.”
Types of economic crime
Asset misappropriation continues to remain the most prevalent form of economic crime reported by 45% of respondents globally and 49% of South African respondents.
While the instances of reported cyber crime showed a small decrease in the South African context (29% in 2018 versus 32% in 2016), it retained its second place in the global rankings (31%) albeit at a lower rate of occurrence than 2016. One of the new categories of economic crimes was that of “fraud committed by the consumer”.
It is the second most reported crime in South Africa at 42% and takes third place globally at 29%. This was followed closely by procurement fraud (39% in South Africa versus 22% globally). This indicates that the entire supply chain in South Africa is fraught with criminality.
When combined with the high instances of bribery and corruption reported (affecting more than a third of organisations at 34%), the resultant erosion in value from the country’s gross domestic product (GDP) is startling.
Cost of fraud and prevention
As awareness, and the profile of fraud and economic crime has risen, so too have investments to combat it, linked also to the direct financial losses reported in the past two years.
According to the survey 35% of South African respondents lost more than $100,000 (+/- R1.2 million) to what they regarded as the most disruptive economic crime to affect them, with 1% reporting losses of greater than $100 million (R1.2 billion).
“When combined with the costs to address this issue through investigations or other interventions, where 41% of respondents reported having had to spend an equal or greater amount (10% reported having to spend upward of three times the amount, with 3% spending as much as ten times the value of the initial loss), we are faced with the damning realisation that the actual cost of these crimes is crippling the economy,” White said.
South African businesses continue to take measures to combat economic rimes, with 44% (Africa: 41%) of respondents having increased their spend on combating fraud since 2016 and 46% plan to increase their spend over the next 24 months (Africa: 45%).
It is positive to note that almost two-thirds (64%) of South African respondents monitor whistleblower lines as a means to ensure the effectiveness of their compliance and governance programmes (Africa: 51%). This represents a 9% increase since 2016, PwC said.