South Africa organizations hold the highest instances of economic crime in the world, with asset misappropriation reported as the most prevalent form of economic crime.
According to PricewaterhouseCoopers (PwCs) 2018 Global Economic Crime and Fraud Survey released on Tuesday, South Africa’s economic crime stands at “a staggering 77%,” reaching a highest level in the last ten years.
The Global Economic Crime and Fraud Survey which examined over 7200 respondents from 123 countries revealed that though the period-on-period rate of increase for South Africa and Africa as a whole was below that of American, Asian and European counterparts, South Africa’s overall rate of reported economic crime remains significantly higher than the global average rate of 49%, highlighting the dire state of Africa’s most industrious economy.
Towing the South African nation footsteps in second place is Kenya (75%), and third is France (71%), while the most of top ten countries on the list are African countries.
South Africa sits second place in global rankings for cybercrime at 31% – a digit short from 2016–, third place at 29% globally in “fraud committed by the consumer” ranking and its procurement fraud index at 39% in South Africa compared to global 22%, giving an indication that the entire supply chain in South Africa is fraught with criminality, in the survey.
“When combined with the high instances of bribery and corruption reported at 34%, the resultant loss in value from the country’s gross domestic product (GDP) is startling, as accounting fraud which is usually perpetrated by senior management and results in the largest losses, increased from 20% to 22%,” the report noted.
It is believed that the surge of reported crimes in the country influenced the “heightened state of fraud awareness by respondents, as South Africa was swept with wave of scandals that threatened investor’s interest and stake in the country’s economy in 2017.
With an ongoing investigation on its tail, the state-owned Gupta scandal is one of the biggest scandals to have moved the country in years, as the Gupta brothers were accused of using their friendship with former South Africa’s President Jacob Zuma to win government contracts.
Also tangled with the scandal is the financial services firm KPMG that lost clients after it announced a major shakeup in leadership, following an internal investigation of its practices while doing work for the Gupta family. KPMG S.A later announced accounting irregularities in its operations that pummeled company’s reputation.
South Africa’s organizations reality
Perhaps, it’s time for South African businesses to recognize the true nature of the threat described as “not just a nuisance or cost of doing business, but a shadow industry with tentacles in every country, sector and function”.
Commenting on the global fraud and economic crime trend, White noted that there has been a “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.”
He added that “organizations are beginning to shed their denial complex regarding the many blind spots they have in identifying fraud and are learning how to address them.”
Organizations are vulnerable to blind spots that stings once its revealed by an incident, hence the need for the application of a preventive approach such as fraud-fighting efforts.
“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 realization that the actual cost of these crimes is crippling the economy,” White comments.