SA now ranks 3rd in the world for economic crimes - PwC


South Africa is now ranked as the third country in the world, after China and India, in terms of having the highest reported incidents of economic crime, according to PwC’s 2020 Global and Economic Crime and Fraud Survey.

At the launch of the survey in Johannesburg on Tuesday morning, the PwC forensic team and a panel which included PwC SA’s Global Economic Crime and Fraud Survey Leader Trevor White, Tongaat-Heulett CEO Gavin Hudson, Financial Mail editor Rob Rose and Divisional Executive for Investigations & Enforcement Brandon Topham, highlighted the rising impact of economic crimes in the private sector and the country's economy as a whole. 

The PwC surveyed over 5 000 individuals from across 99 territories to compile the survey. In South Africa alone, there were 245 respondents, with the majority (71%) at chief executive level.

South African respondents to the survey reported an economic crimes rate of 60% - the lowest level since 2011 - having improved from 77% in 2018. South Africa follows China and India which reported an economics crimes rate of 69% and 60% respectively. 

Although South Africa has experienced a 17% decrease in the level of economic crimes reported, compared to the rest of the world this is a shallow victory. This is largely because the level of reported crime in South Africa remains significantly higher than the global average of 47%.

The types of economic crimes that have been reported in the country vary, with customer fraud being the highest recorded economic crime, according to the PwC report. Incidents of customer fraud that have been reported stand at 47% for 2019, having worsened from 42% reported in 2018.

This is followed by bribery and corruption at 42%, up from 30% in 2018. Accounting or financial statement fraud also featured, showing a 12% increase to 34%. It is anticipated that these crimes are likely to cause more disruption in the country in the next 24 months.

Financial statement fraud is fast becoming alarming as this type of crime involves senior members of companies. According to PwC, senior management involvement in these crimes as perpetrators has spiked to 34% in 2020 from 20% in 2018.

White said financial statement fraud strains the economy and as a result becomes hard to miss. "I think what's really caused them to start to be exposed is the downturn in the economy. There's not so many places to hide and as a result, the organisations can't keep this house of cards going. If there is a small crack, everything crumbles," said White.  

The silver lining on a very dark cloud, is that assets misrepresentation which is one of the popular forms of economic crime in South Africa decreased drastically from 49% to 23%.

"People aren't considering petty theft - just theft of assets - as an economic crime anymore because there is now the exposure of bribery and corruption and financial statement fraud and cybercrime. They are starting to think that those are the real economic crimes," White told Fin24.   

According to PwC, 41% of perpetrators in economic crimes are from within the company, 36% are from outside and 21% of crimes are a combination of both internal and external actors.

Setting an example

The panelists highlighted that to curb the rise of economic crimes in the country, prosecution needs to happen faster, despite limitations presented by the country's justice system which makes it hard to criminally prosecute.

Chief Executive Officer at Tongaat Hulett's Gavin Hudson, said the company is following suit.

"We've opened a criminal case against the previous head of our property business last week already and in actual fact since we involved the crimes unit and the NPA, we have expanded the case now to include five of the previous executives which they are now investigating.

"Subsequent to that, we have also opened a criminal case in Zimbabwe against eight of our executives and that we did as recently as last week. We are moving as quickly as we can," Hudson said.   

The sugar producer last year asked for trade of its shares to be suspended, this after a financial review uncovered accounting misstatements in its financial results. This prompted a further forensic investigation, conducted by PwC. which led to a restatement of its September 2018 results. The group's share resumed trading in February, after the seven-month suspension was lifted, Fin24 previously reported.

White also reiterated that PwC is working with major corporates in the country to nip economic crimes in the bud. 

"I just know that we are working on behalf of a number of clients with the police and prosecuting authorities and a number of those cases are substantially advanced.

"There is a strong will on the behalf of the prosecuting authority to take action and to show the economy and the county at large that things are actually happening," said White.

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