Downturn heightens pressure for fraud
SA firms report second-highest incidence in survey
November 19, 2009
By SAMANTHA ENSLIN-PAYNE
To read the full PWC global economic crime survey - click here to download full document
Increasing pressure to meet financial targets, a fear of being retrenched and the need to keep up with the Joneses are among the reasons South Africans are just one step behind the Russians, and well ahead of the global average, when it comes to committing fraud.
Trevor White, the director for forensic services at PricewaterhouseCoopers in KwaZulu-Natal, said yesterday: "The global downturn has heightened the pressures and incentives to commit fraud. In an economic downturn, financial targets are more difficult to achieve, individuals may feel pressured and their personal financial position may be threatened by reductions in pay or lay-offs."
The fifth Global Economic Crime Survey 2009, conducted by PricewaterhouseCoopers and Insead business school, was released yesterday.
It focuses on economic crime in a downturn and shows that 30 percent of global respondents reported having experienced fraud in the year to last month.
In South Africa, 62 percent of respondents experienced fraud in the past year, compared with 71 percent in Russia, 43 percent in the UK, 35 percent in the US and 10 percent in Japan.
The survey, which is done every two years, was based on interviews with more than 3 000 senior managers at companies in 54 countries.
Of those that identified underlying business pressures as the main reason for rising fraud, 54 percent of South African businesses surveyed said difficulty in achieving targets was a motivating factor for fraud, compared with 47 percent globally. Fear of losing jobs was cited by 31 percent against 37 percent globally.
The desire for performance bonuses was cited by 29 percent of local companies and the ambition of senior management to achieve desired financial results accounted for 26 percent of fraud, both in line with global trends.
Despite South Africa recording the second-highest level of economic crime in the past 12 months, White said this was an improvement on 2007 and 2005, when 72 percent and 83 percent, respectively, of local firms reported being the victims of fraud, compared with the global averages of 43 percent in 2007 and 45 percent in 2005.
Theft was the most pervasive crime at South African companies. At 82 percent, this was higher than the global norm of 67 percent.
Globally, financial statement fraud was the fastest growing form of economic crime and had more than tripled since 2003. But in South Africa this type of crime decreased from 45 percent in 2005 to 39 percent this year.
Most fraud was committed by junior or middle management, although insurance, financial service and communication companies were more susceptible to attack from outsiders, the PWC survey said.
Carl Bosma, a director at BDO Spencer Steward, said a lot of fraud relating to electronic payments had been detected in the past year, "which we are attributing to the economic downturn". In this case it was mostly junior employees and middle management who stole from employers by transferring funds owed to suppliers to their personal bank accounts.
Part of the reason for this type of fraud increasing was that companies had cut back on staff, meaning fewer people had more control. "There is probably more going on than we suspect. Internal controls are less of a priority in the current economic climate," Bosma said.
Although some companies did pay attention to detail, other businesses expected to do badly and so did not question losses as closely.
Where senior managers did commit fraud it was by misstating financials when applying for bank loans, Bosma said.
One of the lowest incidences of fraud in South Africa and globally is tax evasion. Anthony Thunstrom, a director at KPMG, said companies and individuals were much more aware of the fact that the SA Revenue Service was highly skilled, motivated and capable and that "it frankly isn't even worth thinking about trying to defraud the receiver".
The PwC survey shows that South Africa also exceeded the global average by far when it came to bribery and corruption. Of the companies surveyed, 59 percent reported bribery and corruption, compared with 27 percent globally.
Transparency International ranked South Africa 55th out of ' countries in the 2008 Corruptions Perceptions index.
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