World fraud champs

19 February 2014 - 02:19 By GRAEME HOSKEN
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South Africa is the world leader in money-laundering, bribery and corruption, procurement fraud, asset misappropriation and cybercrime.

For the first time in nine years, the prevalence of economic crime is on the increase in South Africa.

And according to the Institute of Accountability, the spread of corruption is directly linked to the demise in 2009 of the corruption-busting Scorpions, which were replaced by the police's Hawks.

The PricewaterhouseCoopers South African edition of the Global Economic Crime Survey, released yesterday, fingers senior managers as the No1 culprit driving the "mind-boggling" theft.

The report revealed that 77% of all internal fraud was committed by senior and middle management.

The primary motivation for senior managers was greed, while junior management tended to commit these crimes because they perceived injustice.

PwC director Louis Strydom described as "mind-boggling" the loss South Africa suffered as a result of economic crime.

"Of the 134 surveyed South African respondents, four reported losing more than $100-million (R1-billion) each through fraud," he said.

Institute of Accountability director Paul Hoffman estimates that corruption has cost South Africa R700-billion over the last 20 years.

"Through government's tendering system, R30-billion is stolen annually through corruption," he said.

The PwC survey, which included private sector and government entities, found that 69% (92) of interviewees had experienced economic crime in the last 24 months.

By contrast, between 2005 and 2011, the prevalence of economic crime had declined from 83% to 60%.

According to the current PwC report, 37% of those surveyed globally had experienced economic crime.

The South African respondents reported the types of economic crime were:

  • Asset misappropriation 77% (globally 69%);
  • Procurement fraud 59% (29%);
  • Bribery and corruption 52% - up from 42% in 2011 - (globally 27%);
  • Human-resources fraud 42% (globally 15%);
  • Financial-statement fraud 35% (22%);
  • Cybercrime 26% (24%);
  • Money-laundering 14% (11%);
  • Tax fraud 11% (6%); and
  • Illegal insider trading 9% (5%).

PwC's Strydom said: "Though in terms of financial losses below $100000 (R1-million) South Africa ranks lower than global averages, in losses between $1-million and $100-million and above, South Africa ranks the highest.

"Alarming is how often losses are kept under wraps.

"The consequences of such losses are immense . and include reputation, financial [loss] and disruption," he said.

Africa and Eastern Europe reported the highest prevalence of bribery and corruption (39%), followed by the Middle East (35%), Asia Pacific (30%), Latin America (25%), North America (14%) and Western Europe (12%), Strydom said.

Infringements of competition law were an "increasing problem".

"Of the South African respondents, 3% lost between R10-million and R1-billion through such crimes over the past 24 months.

"There is no clear understanding around anti-competition laws [and] investigations are incredibly costly, requiring sophisticated forensic tools. The sooner we see high-level prosecutions for such crimes, the better," he said.

Globally, governments accounted for 46% of procurement fraud, followed by energy, utilities and mining (43%) and engineering and construction (42%).

In South Africa, vendor selection was the most targeted, Strydom said.

"Just look at how many projects, meant to assist the poor fail because of the misappropriation of funds."

The number of South African senior managers committing economic crimes was double the global number, he said.

"Procurement fraud cannot happen if there are no internal players. To deal with economic crimes there must be a focus on management.

"If management doesn't advocate against such practices, we cannot beat it."

Strydom said fraud-risk management was the most effective means of detection, and South African companies were ahead of their global counterparts in this area.

"Worrying though is that 20% of companies do not undertake risk assessments, with 18% of culprits only receiving warnings, while 9% of companies do nothing against perpetrators.

"It is encouraging that more South African companies (82%) than their global counterparts (49%) turn to law-enforcement agents to deal with (internal) culprits."

Externally, 63% of culprits in South Africa were turned over to the police, versus 61% globally.

Hoffman said corruption would continue until the government developed the political will to appoint an effective, independent anti-corruption entity.

"Currently we pursue a multi-agency approach . the problem with this in relation to corruption is that too much falls through the cracks, with no specific agency having the necessary clout to take on corruption in high places.

"The Hawks are not as effective as the Scorpions . they don't have the clout," Hoffman said.

Corruption Watch spokesman Bongi Mlangeni said the real cost of corruption was the loss of trust between leaders and the public.

In his State of the Nation speech last week, President Jacob Zuma said the fight against corruption was yielding results.

The government would establish a central tender board to prevent corruption within supply chains, he said.

Zuma highlighted the competition authorities' investigation of large-scale price-fixing in the construction industry and that guilty companies were fined R1.4-billion.


Profile of a fraudster

  • Male;
  • 31 to 40;
  • University degree;
  • Employed in company for more than 10 years
  • PwC economic crime survey
  • 5128 respondents;
  • 93 countries;
  • 50% of respondents were senior executives;
  • 35% in listed companies, 9% in public sector and 50% in private companies.
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