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CGF ARTICLES, OPINIONS & EDITORIALS

ECONOMIC CRIME IN SOUTH AFRICA: FACT OR FICTION? (2015-05-27)

Article by Terrance M. Booysen and peer reviewed by Sharon van Rooyen (Partner: EY)

It’s a fact.  No matter which global or regional surveys a person may refer to, the latest 2014/15 surveys on economic crime all show that crime of this nature is on the increase.  Economic crime -- particularly fraud and corruption -- are causing organisations in both the public and private sector substantial financial losses, and increasing pressure on business to grow their revenues together with market volatility could be just some of the reasons why these crime statistics are increasing.

EY’s Europe, Middle East, India and Africa (‘EMEIA’) 2015 Fraud Survey, entitled Fraud and corruption – the easy option for growth? found that greater pressure on businesses to grow revenues, together with market volatility was creating increased risk in expansion opportunities.  Challenges -- including geopolitical instability, commodity and currency price volatility, as well as economic sanctions -- were pushing companies and their executives toward high-risk behaviour.  Nearly thirty-three percent (33%) of the EY Fraud Survey respondents reported that management was under increased pressure to expand into higher risk markets.  In these markets, sixty-one percent (61%) of respondents regarded corruption in companies as widespread, and thirty- seven percent (37%) of respondents reported that companies often overstate their financial performance.

In the 2014 Report to the Nations on Occupational Fraud and Abuse, conducted by the Association of Certified Fraud Examiners (ACFE), it found that whilst there was a higher percentage of fraud being committed by staff on the employee level, fraud committed by employees accounted for a much lower median loss than fraud committed by its executives.  In the same ACFE report, it is interesting to note that accounting departments (as compared to seven other departments) were rated as the number one area where occupational fraud was most likely to occur.  More interestingly though; was that whilst executives tended not to commit fraud as much as their junior counterparts, when executives did commit fraud, it was usually six times the value of those committed by their juniors.  These findings were also corroborated in another fraud study, namely the 2014 Kroll Report, which was undertaken by the Economist Intelligence Unit with 901 senior executives polled globally.  They reported that the following individuals were a leading figure in at least one fraud:

  • 32% were senior or middle managers,
  • 42% were junior employees, and
  • 23% were agents or intermediaries.

In the 2014 Global Economic Crime Survey concluded by PricewaterhouseCoopers, out of the top five most reported crimes was Asset Misappropriation (69%), followed by Procurement Fraud (29%) and Bribery and Corruption (27%).  This report furthermore stated for the first time since 2005, South Africa had shown an increase in the prevalence of economic crime.  Whilst the global overall incidence of fraud increased from 2009 to 2011, South Africa recorded a fraud incident rate of sixty percent (60%) in 2011 and sixty-nine percent (69%) in 2013.  Over the same period of time, the global average of fraud incidence was thirty-three percent (33%) and thirty-seven percent (37%) respectively.  What is of grave concern for South Africa is that the country is reportedly experiencing a higher incidence of economic crime in every category, except in the categories of Intellectual Property Infringement and Mortgage Fraud.

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