PwC has published a new report looking at economic crime in South Africa and how it impacts the country’s business landscape.
The report shows that South Africa’s rate of reported economic crime of 60% remains significantly higher than the global average rate of 47%.
However, the good news is that economic crime has dropped notably to levels last seen in 2011.
“As South Africans, we have become accustomed to being at the very top of the naughty list, but in the two years since our previous survey, we have seen a rather surprising drop in the reported rate of economic crime, from 77% in 2018 to 60% this year,” said PwC.
Should we be celebrating?
With respondents in India and China reporting the highest occurrence of economic crime, South Africa has slipped to third in the top 10 ranking of countries with the highest reported economic crime in the world.
For the first time since this survey began, asset misappropriation was not identified as the most prevalent economic crime. This year’s survey ushers in a new era in which customer fraud has come to the fore as the most prominent economic crime, followed by bribery & corruption and financial statement fraud.
It is notable that while incidences of most fraud types declined in South Africa, occurrences of the top three rose, and so too did cyber crime, which seems to be creeping up to previous levels, said PwC.
“The significant increase in financial statement fraud is concerning as this type of fraud invariably involves senior management and the amounts are significant. The negative effect of this crime on all stakeholders and the future sustainability of the entity as a whole can be catastrophic,” it said.
There has also been a disturbing increase in the level of involvement of senior management as the main perpetrator, escalating from 20% in 2018 to 34% in 2020, the professional services company said.
Types of economic crime/fraud experienced
What a white-collar criminal looks like in South Africa
PwC’s data shows that South African organisations have seen an upsurge in instances of senior management perpetrating fraud.
“Economic crimes perpetrated by senior management are often among the most sinister because of the ability (whether through delegated authority levels, system knowledge, or influence) of top executives to override (or conspire to override) internal controls.”
With more than a third of South African respondents falling prey to this phenomenon, much greater focus on governance is required in organisations, PwC said.
“The days of the passive non-executive board member have surely passed and there is a need for this independent oversight function to become more involved and ask the difficult questions, and thereafter demand and interrogate the answers provided.”
South African respondents cited organised crime as the highest-rated source of external perpetrators with fraud committed by customers coming in a close second (at 25%) as the most disruptive fraud.
“From a global perspective, customer fraud is especially prominent in the financial services and consumer markets segments. This could be telling as industries shift to direct-to-consumer strategies,” PwC said.
“The good news? It’s also one of the frauds where dedicated resources, robust processes and technology have proven effective in prevention.
“One in five economic crimes perpetrated by external parties were committed by hackers, highlighting the fact that organisations cannot drop their guard in any area, especially if they are adopting greater levels of technological sophistication.”
Bribery and corruption
One in five South African respondents cited bribery and corruption as the economic crime which had the most disruptive impact — and almost half the companies surveyed were themselves accused of bribery and corruption.
This remains a big challenge to business and government alike, PwC said.
“In the past 24 months, 42% of South African respondents (global: 29%) say they have been asked to pay a bribe in the course of doing business,” it said.
“Add this to the 44% who believe they have lost an opportunity to a competitor who paid a bribe, and you realise how dismal the situation is.”