Economic crime: A global risk

BY RICK DANAO
SEPTEMBER 01, 2017

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 ECONOMIC CRIME: A GLOBAL RISK

RICK DANAO
Economic crime has been a hot topic because of a number of incidents
involving fraud, corruption and bribery that have caught the attention
of the country’s legislative and regulatory bodies. These crimes, which
involve money laundering, alleged briberies and internal fraud, are
normally driven by a common motive: financial gain.

The ongoing Senate investigations into a tax collection agency, the

internal fraud and money laundering case involving a couple of
financial institutions, and the alleged overpricing of government
projects, indicate that economic crime is a prevalent issue that has to
be addressed with urgency.

In 2016, PwC published the Global Economic Crime Survey report

involving a total of 6,337 respondents from 115 countries. In my view,
the survey is reflective of the real risks faced by businesses and
organizations today, regardless of size and location. Below is a
summary of the important points, from my perspective, as revealed by
this survey:
Economic crime is an obstinate threat

The survey reveals that 36 percent of the organizations they represent

have experienced economic crime. Geographically, economic crimes
are observed in both developed and emerging markets. Prevalence,
however, is higher in Africa (57 percent). Thirty percent of those
surveyed in Asia have experienced economic crime. The Middle East
recorded the lowest rate at 25 percent.

What surprised me is that Western Europe and North America have

prevalence rates of 40 percent and 37 percent, respectively. This tells
us that economic crime or fraud is a serious threat even in advanced
countries where organizations, in general, have invested heavily in
technologies and resources to prevent and detect fraud.

The rise in cybercrime is also revealed by the survey, affecting 32

percent of participating organizations. Regrettably, only 37 percent of
organizations have cyber incident response plans.

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The survey also shows that detection methods are not keeping pace. In
my opinion, this is a correct observation. Let us take a look at the
alleged under-declaration of imported goods in one of the tax
collection agencies. I believe they have computerized systems and
real-time information to monitor the declared value of each
importation, which can help curb illegal practices. This information
should be analyzed to spot any indications of smuggling. So where is
the gap? The answer has to be a product of the ongoing inquiry. I am
dismayed that thousands of importations, under the same broker, with
identical declared values and taxes paid, have gone undetected.

What are the most pervasive crimes?

The top five most pervasive economic crimes are 1) asset
misappropriation, 2) cybercrime, 3) bribery and corruption, 4)
procurement fraud, and 5) accounting fraud. Tax fraud, which is one
of the main reasons behind the ongoing Senate inquiry, is in the list of
the top 10 most common economic crimes.

The above crimes, in my humble opinion, are consistent with what we

may be experiencing in the Philippines. I remember a company
president of a marketing firm creating bogus sales documents to make
it appear that sales volumes targets are met. The president became
entitled to bonuses and incentives because of this fraudulent act. This
abuse was not immediately detected until an audit was conducted.
Unfortunately, overpaid incentives to the president were never
recovered.

Profile of the fraudster

According to the survey, more than half of the internal perpetrators

originate from middle to senior management. This is probably the
reason why economic crime or fraud is sometimes called white-collar
crime.

Their involvement suggests that fraud is perpetuated when internal

controls have failed, because of issues related to values and behavior.
Where fraud involves senior management, it is probable that policies
and well-established controls are deliberately overridden. Even if you
have the most sophisticated system in place, your organization is still
susceptible to fraud if certain people connive to perpetuate a crime.

So what are the characteristics of an internal fraudster? Survey says he

is generally male, a university or college graduate, somewhere
between 31 and 40 years old, with at least three to five years of
service. In my view, this result makes sense because you cannot
perpetuate a fraud without intimate knowledge or familiarity with the
processes, systems, people, suppliers, customers and the organization
as a whole.

So how do you combat economic crime?

Combating economic crimes within the organization requires an

integrated and holistic approach. People with the right culture and
behavior are your best defense. Good governance has to be a
fundamental part of any organization. Regardless of the size and
degree of systems sophistication, the organization should be where
good behavior, values and culture of compliance are promoted,
enforced, measured and where appropriate, rewarded.

Needless to say, you need to have the right systems and processes to
make it work and support the overall needs of your business or
organization.

Enjoy the long weekend, everyone.

Roderick M. Danao is the vice chairman and assurance managing

partner of Isla Lipana & Co./PwC Philippines. Email your comments
and questions to markets@ph.pwc.com. This content is for general
information purposes only, and should not be used as a substitute for
consultation with professional advisors.

Source : https://www.manilatimes.net/economic-crime-global-risk/347945/