PricewaterhouseCoopers, (PwC) conducted a 2011Global Economic crime survey that examined the current fraud landscape, taking a closer look at who is committing fraud and what new types of economic crimes are emerging.
The 2011 survey indicated an increase in the number of frauds committed against the public purse. Of the government and public sector respondents, 46% reported experiencing one or more incidents of economic crime in the last 12 months, up from 37% in 2009.
It is interesting to note that there are over ten types of economic crimes. Economic crimes include asset misappropriation, accounting fraud, bribery and corruption, cybercrime, IP infringement, money laundering, tax fraud, insider trading, anti-competitive behavior, espionage, sustainability fraud among others.
The most common type of public sector fraud suffered by 75% of the respondents was asset misappropriation. This was closely followed by accounting fraud suffered by 32% of the respondents and the third most common type of fraud was bribery and corruption suffered by over 20% of the respondents.
There has been significant focus across the world in putting in place a transparent and accountable public sector. Hence, one would wonder who is committing fraud in the public sector. The survey indicated that 67% of the reported fraud is internally perpetrated while only 27% is externally perpetrated. It was noted that there has been a large increase in the number of frauds committed by public sector staff.
The survey also showed that public sector employers are less likely to dismiss employees for committing fraudulent acts than in other industries. It is also easy for an individual to simply transfer departments, leaving them free to commit economic crimes over and over again. If public sector organisations are to adopt a zero tolerance approach to economic crime, they need to consider seriously the actions taken against fraudulent behaviour.
Another interesting aspect revealed by the survey is that the profile of an internal perpetrator is a male, in a relatively junior position, with more than 5 years of service and older than 40 years of age.
The main external perpetrator was identified as the “supplier”. Supplier fraud accounted for 32% of all external frauds. The most common schemes used by suppliers include false invoicing, unauthorised changes of supplier details and collusion between suppliers and internal parties (procurement fraud).
Collusion is one of the most difficult frauds to detect in an audit because the supporting paper work is altered to remove all traces of fraud.
The increase in supplier fraud reported in the survey means that it is imperative that public sector organisations know with whom they are doing business. The second largest external perpetrator of fraud reported in the survey is the “customer” who accounted for about a third of reported frauds in the public sector and the third largest external perpetrator was “agents or intermediaries.” It seems that the public sector must keep an “eye” on both its partners and the people it was set up to serve.
There are many mechanisms for detecting fraud that can be used in the public sector and these include internal audit, fraud risk management, suspicious transaction reporting, security, rotation of personnel, whist blowing, among others.
Five main ways of protecting your organisaiton against economic crime include, ensuring you know who you are dealing with – staff, suppliers, customers, partners and agents; aligning information technology, internal audit and the board in the fight against economic crime; conducting regular fraud risk assessments; putting in place a zero tolerance environment; and setting the right tone at the top.
Florence Gatome is a Senior Manager with PwC Rwanda Limited.