SA, capital of white-collar crime

South Africa has the worst white-collar crime rate in the world, according to a survey released on Tuesday.

Companies reported an average of 23 cases of fraud during the past two years, with each organisation losing an average of over R7,4-million in that period.

This was a 110% increase on the number of fraud cases reported by SA companies in 2005, according to the PricewaterhouseCoopers (PWC) fourth biennial Global Economic Crime Survey.

“This is a direct result of an increased focus on fraud risk management and embedding a culture of whistle-blowing,” said Louis Strydom, head of PWC’s forensic auditing division.

While the number of cases had risen, the percentage of SA companies that said they had been subjected to white-collar crime decreased to 72% in 2007 from 83% in 2005.

Globally, 43% of the companies surveyed said they had been subjected to economic crime in the past two years, down from 45% in 2005.

“While fraud is committed by people at every level and in practically every department, ‘figureheads’ within SA businesses are responsible for 17% of all reported frauds and have been in the company for an average of seven years.”

Three percent of SA companies who took part in the survey estimated losing more than R10-million to fraud over the past two years. No losses of such a magnitude were reported in 2005.

According to Strydom this indicated that the sophistication and value per incident of economic crime were increasing. He expected cyber crime, which targeted companies’ information systems, to increase over the next few years.

The profile of the typical fraud convict remained unchanged from the 2005 survey. In 76% of cases men were the culprits. In 45% of cases the perpetrator was aged between 31 and 40. Sixty-four percent of fraudsters had a high school education or less.

Strydom said most fraud convicts tended to be risk-takers, or else decisive career or success orientated individuals, traits that were paradoxically also highly sought after in management recruits.

Once fraud had been detected, 64% of the SA companies surveyed said they laid criminal charges, compared to 50% worldwide.

Dismissal was used in 51% of cases and civil action in 38%. Ten percent said they did nothing, compared to 16% for the rest of the world. A “very high” 18% of companies said they let fraud convicts off with a warning or reprimand.

In SA only 30% of perpetrators had been sentenced. Thirty-two percent of cases were still pending. In the rest of the world 20% of perpetrators were sentenced and 30% had cases pending.

Strydom said he expected the number of cases that ended in sentencing to “change significantly” as more resources were being poured into the prosecution or investigation of white-collar crime.

He stressed that controls on their own were insufficient to mitigate the risk of fraud. Companies had to establish a culture that supported those controls.

In both SA and the rest of the world, corruption and bribery as well as asset theft were the two types of economic crime perceived to be most prevalent.

On detection methods, internal audits, internal tip-offs and a whistle-blowing system were the most popular.

By far the biggest reason given for fraud being committed was greed—mentioned by 60% of local companies, compared to 57% in the rest of the world. A low temptation threshold was next on the list of individual reasons for fraud. The two highest “corporate causes” were a “low commitment to the brand” and insufficient controls.

The survey showed that spending more money to put more controls in place paid off. A company with five or more controls in place would detect an average of 10 cases of fraud worth about R21-million. A business with up to five controls would find an average of six cases worth R6,3-million.

Corruption and bribery topped the list of economic crimes perceived to be most prevalent with the E7 block of emerging economies—Brazil, Mexico, China, India, Indonesia, Russia, Turkey.

Over 80% of companies in all E7 countries listed “levels of corruption” as their primary concern, ahead of staff integrity, staff security and the legal environment.

In SA 103 organisations were surveyed. Seventy-one percent of those were listed companies. Egypt and Kenya were the only other African countries represented in the survey, with 75 and 76 companies taking part respectively.

The 2007 survey was conducted in a total of 40 countries between April and July 2007. Over 5 400 interviews were conducted with chief executives, chief financial officers and others responsible for preventing white-collar crime in their organisations. - Sapa

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