Companies operating in South Africa have once again reported the highest rate of economic crime, according to a biannual survey produced by audit firm PwC.
A total of 77% of the 282 respondent companies for South Africa reported suffering one or more economic crimes between September 2015 and September 2017.
That is up from 69% in the previous iteration of the survey in 2016 and close to the old high of 83% in 2005, when PwC first carried it out.
This does not necessarily mean South Africa has the most economic crime.
“The increase could measure an increase in transparency, not crime,” said Trevor Hill, partner in PwC’s anti-bribery and corruption team in Johannesburg.
“We don’t see Nigeria on this list because no one in Nigeria responded to the survey.”
The crimes surveyed range from tax fraud (1% of respondents in South Africa) to fraud by consumers, such as fraudulent claims or credit card fraud (42% of respondents).
The survey in effect covers 54 countries – all the countries for which there were valid survey responses from at least 50 companies.
South Africa’s rate of reported economic crime is comfortably higher than the average of 49% for all these countries. Both Kenya and France score nearly as high.
The most dramatic finding from the new PwC survey is the massive spike in the rate of reported economic crime globally. This outpaced the increase in South Africa.
In 2016, the survey saw 36% of respondents worldwide report one or more incidents of economic crime. This year it is 49%.
The nature of the survey, however, makes it possible that the high number actually measures transparency and the extent to which crimes are detected to begin with.
“It is a bit of both,” said Trevor White, a partner at PwC Forensic Services.
“You want to believe the initial increase is not because of more crime, but because more crime is unearthed. Then you would expect the trend to reverse at some point and decrease.”
Unfortunately, the PwC survey has found a steadily rising level of economic crime globally for five editions in a row, covering a decade.
“It is not a South African problem,” said White.
For South Africa, PwC’s survey was answered by “predominantly big organisations” and often multinationals.
“We are looking for the bigger ones and try to exclude small companies.”
The survey is, however, completely anonymised, so even White does not know who is included.
About half of all the economic crimes reflected by the survey were perpetrated by employees of the affected company.
Of the 282 local respondents, 22% said they had suffered accounting fraud. This is a category that only senior managers can really be guilty of, said White. It is also the category that involves the largest losses.
Steinhoff is a spectacular recent example. Neither the company nor its auditors are at this stage really sure about the extent to which its books have been cooked.
“Big frauds are usually perpetrated by senior managers to meet the expectations of funders or shareholders,” said White.
The survey cannot be used to extrapolate a total loss to the economy or even the respondents, because they are only asked to estimate losses within bands.
From this it is however possible to say that 48% of them think they lost less than $100 000 (R1.2 million) to the economic crimes they know of in the past two years. In South Africa, 1% said they lost $100 million or more, meaning at least one or maybe two companies had losses of that scale.
“These are probably companies you know of,” said White.
The South African police has suffered a brain drain that has undermined its ability to investigate economic crimes, said White.
“It is hard to declare an economic crime in South Africa. Until recently, the Hawks were not taking it seriously. The old commercial crimes units have been depleted of skills over time.”
He told City Press that the Durban commercial crimes unit has seen a lot of its most experienced members leave for the UK.
Others find their way to the Hawks or into private security companies, he said.
“The demand for forensic investigations is definitely growing,” said White. The industry is however very different from what it was 10 years ago, he added.
In the past, forensics meant a combination of former specialised police officers and accountants. Now, it increasingly means data analysis to, for instance, read millions of emails.
“Everyone thinks they can do a forensic investigation. You have ex-cops, lawyers and accountants all setting up, but there are no standards. We do it too with our chartered accountant and Independent Regulatory Board for Auditors’ standards. Many people are not complying with the rules.”
According to Hill, as corporations increasingly produce all their records digitally, data analysis has become the future of forensics. He pointed to examples where high volumes of invoices may need to be analysed to find aberrations.
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