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PWC Report: The fraud threats you may be ignoring

 

A global survey on fraud calls it the “biggest competitor you didn’t know you had.”

A report by PwC (PricewaterhouseCoopers) says fighting fraud has moved front and center to become a core business issue.

“Long gone are the days when it was viewed as an isolated incident of bad behaviour, a costly nuisance, or a mere compliance issue,” says the 2018 Global Economic Crime and Fraud Survey. “That’s because the scale and impact of fraud has grown so significantly in today’s digitally enabled world. Indeed, it can almost be seen as a big business in its own right – one that is tech-enabled, innovative, opportunistic and pervasive.”

The study shows there is growing awareness of the perils of economic crime, but few companies are fully aware of the individual risks they face – the so-called blind spots to keep them from seeing the big picture.

PwC’s survey finds that 49 per cent of global organizations say they have experienced economic crime in the past two years. “But what about the other 51 per cent? Have they avoided falling victim – or simply don’t know about it?”

About half of all fraud is internal

The survey found that internal actors committed 52 per cent of frauds. The report also found a significant increase in the number of frauds committed by senior management – up to 24 per cent from 16 per cent in their 2016 study.

The threat from outside is also high as some 68 per cent of external perpetrators are “frenemies of the organization” – agents, customers, shared service providers and vendors.

The study also points out that senior managers are finding themselves on the hook for fraud within their companies – whether they are aware of it or not.

“When ethical or compliance breakdowns happen, these individuals are often held personally responsible – both by the public and, increasingly, by regulators. Whether merited or not, one thing is clear: the C-suite can no longer claim ignorance as an excuse. “

Senior managers aware of fraud

The survey shows that in nine of every 10 cases, the most serious incidents of fraud have been brought to the attention of senior management.  In addition, 17 per cent of respondents indicated that the CEO has primary responsibility for their organization’s ethics and compliance program.

The study goes on to say preventing the rationalization of a fraudulent act is more of a challenge.

“One of the peculiarities of internal fraud is that those who commit it often see it as a victimless crime and cannot visualize any person who will be directly harmed by their actions. This helps explain why nearly three-quarters of survey respondents told us that an internal actor was the main perpetrator of the following most disruptive economic crimes, including human resources fraud (81%), asset misappropriation (75%), insider trading (75%), accounting fraud (74%) and procurement fraud (73%).

The first step in preventing rationalization is to focus on the environment that governs employee behaviour – the organizational culture. “Surveys, focus groups and in-depth interviews should therefore be used to assess the strengths and weaknesses of that culture.”

Consistent training is also key, the survey said. “If people clearly understand what constitutes an unacceptable action – and why – rationalizing fraudulent activity will be harder.”

Emerging countries lead on technology

There is some good news in the fight against fraud globally.

The survey also points out that emerging countries are doing more with technology to try to combat fraud in the workplace.

“Indeed, our survey shows that companies in developing territories are actually investing in advanced technologies at a faster rate than those in developed territories.”

Some 27% of companies in developing territories said they currently use or plan to implement artificial intelligence to combat fraud, while just 22% of companies in developed territories said the same.

“For those developing territories, this approach could represent an effective means of catching up in an area in which other nations have already sunk considerable infrastructure costs,” the report said.

The PwC survey involved 7,228 respondents from across 123 different territories and is conducted every two years.

To find out how Alessa can help flag fraud indicators, please contact us.

 

 

About Anu Sood

Anu Sood (LinkedIn | Twitter) is the Director Marketing at CaseWare RCM and is responsible for the company’s global marketing strategy. She has over 20 years of experience in product development, product management, product marketing, corporate communications, demand generation, content marketing and strategic marketing in high-tech industries.