PRICEWATERHOUSECOOPERS AUDIT SRL

  |  05.03.2014

Economic crime rising globally, all business sectors, regions suffer from impact

Nearly 40% of respondents of PwC Global Economic Crime Survey say they are victims of fraud, 25% report cybercrimes

Economic crime against businesses and other organizations continues to rise around the world. Some 37% of respondents, a 3% rise since 2011, say they have been victims of economic crime, according to PwC's 2014 Global Economic Crime Survey. And, about 25% say they have been victims of cybercrime, as fraudsters increasingly turn to technology as their main crime tool.

 

“Economic crime persists despite ongoing efforts to combat it. No organization of any size anywhere in the world is immune to the impact of fraud and other crimes,” said Cornelia Bumbăcea, Partner, Advisory Services, PwC Romania.

 

PwC’s global survey found that theft remains the most common form of economic crime, reported by 69% of respondents. It is followed by procurement fraud (29%), bribery and corruption (27%), cybercrime (24%), and accounting fraud (22%). Other reported crimes include money laundering, intellectual property or data theft, mortgage fraud and tax fraud.

 

The exact direct loss associated with economic crime is difficult to assess. Among crime victims, a total of 20% place the financial impact of economic crime on their organization at more than US$1 million; and 2% of victims – representing 30 organizations -- put the impact at more than US$100 million each.

 

For the first time this year, PwC’s globalsurvey measures procurement fraud, reported by nearly 30% of respondents.

 

Respondents also report significant collateral damage in areas such as employee morale, cited by 31%, and in corporate reputation and business relationships, both reported by 17%.  Despite the financial and collateral effects of crime, just 3% of respondents said incidents of fraud have impacted their company’s share price.

 

“Even worse than the financial impact of economic crime is its threat to a wide range of business systems that are the lifeblood of corporate operations. Economic crime damages internal processes, erodes the integrity of employees and tarnishes reputation,” said Ana Sebov, Senior Manager, Forensics and Dispute Resolution Leader, PwC Romania.

 

Where Does Economic Crime Occur?

Economic crime is a pervasive, global threat. Regionally, economic crime is most prevalent in Africa, where 50% of respondents say they have been victims, though down from 59% in 2011. It is followed by North America (41%), Eastern Europe (39%), Latin America and Western Europe, each (35%), Asia Pacific (32%), and the Middle East (21%).

 

Respondents from 65 countries and territories reported that they have experienced economic crime. South African respondents report the highest level, 69%, up from 60% in 2011. Crime is also growing rapidly in the Ukraine, 63% up from 36% three years ago, Russia, 60% vs. 37% in 2011, and Australia, 57% vs. 47% in 2011.

 

Which Industries are Most Affected?

 

By industry, economic crime is most common in the financial services, retail and consumer and communications sectors. Nearly 50% of respondents in each said they have been crime victims. Financial services organisations are victims of high levels of cybercrime and money laundering, while retail and consumer and communications companies have suffered from most from theft. Hospitality and leisure, and government, both 41%, also report high crime levels.

 

Who commits fraud?

Typically economic crime is committed when three conditions are present: life pressure, opportunity and personal rationalisation for the crime.

 

Globally, 24% of economic crime is committed by those in senior management, 42% by middle managers and 34% by junior staff.

 

The profile of the typical fraudster is a middle-aged male with a college degree or higher level of education who have been with their organization for a substantial period. Globally, almost half of all frauds are committed by employees with 6 or more years of experience and almost a third are committed by employees with 3 to 5 years of experience.

 

How is Fraud Found?

The survey found that 55% of economic crime is discovered through corporate controls such as reporting of suspicious transactions, internal audit, or fraud risk management. Whistle-blowing systems or tips offs uncover about a quarter of reported crimes, and about one-fifth is uncovered by other means such as law enforcement, the media, or by accident.

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