Bosses are stealing bigger sums, and ordinary people are seeing a gap too
Customer fraud (SA 47%, global 35%) has become the most prominent economic crime faced by businesses, a PwC survey shows.
This is followed by bribery and corruption (SA 42%, global 30%) and accounting/financial statement fraud (SA 34%, global 28%).
“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. The good news? It’s also one of the frauds where dedicated resources, robust processes and technology have proven effective in prevention,” according to the PwC’s Global Economic Crime and Fraud Survey.
Customer fraud refers to mortgage fraud, credit card fraud, claims fraud, cheque fraud, ID fraud and similar.
India and China reported the highest occurrence of economic crime, with SA ranked third.
The reported rate of economic crime in SA has improved from 77% in 2018 to 60% this year.
But PwC said this should not be heralded because at 60%, SA’s rate of reported economic crime remains significantly higher than the global average rate of 47%.
“Added to this is the stark reality that the incidence of higher value serious economic crime has doubled in the past 24 months from 1% to 2%.”
While incidences of most fraud types declined in SA, occurrences of the top three rose, and so did cybercrime, said PwC.
“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.”
This showed 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.”
Customer fraud has come to the fore as the most prominent economic crime (South Africa: 47%, global 35%), followed by bribery and corruption (South Africa 42%, global 30%) and accounting/financial statement fraud (South Africa 34%, global 28%)PwC
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.
PwC said: “This remains a big challenge to business and government alike.”
In the past 24 months, 42% of South African respondents (global 29%) said they have been asked to pay a bribe in the course of doing business.
“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. Swift and decisive action needs to be taken.”
PwC said cosmetic interventions to counter the scourge of economic crime “are losing their lustre and trust is a precious commodity that is being lost”.
A third of South African respondents identified distrust as the most significant emotional impact brought about by acts of malfeasance, said PwC.
“The added risk, and a systemic risk at that, is that with the prominence of economic crime being perpetrated by so-called ‘captains of industry’, there is a tendency for common folk to rationalise criminal actions.
“The rise of customer fraud, which was only introduced as a category in the survey in 2018, is an indication of the erosion of the ethical fabric of our society.”
Big amounts are at stake.
Roughly 7% of South African respondents who experienced fraud in the last 24 months reported losing more than $50m (about R778m) across all incidents, with 4% reporting direct losses in excess of $10m for all incidents of fraud, corruption or economic crime experienced in the past 24 months. Incidences of losses in excess of $100m with respect to the most disruptive economic crime experienced by South African respondents doubled since the 2018 survey, from 1% to 2%.