Our correspondent Andreas Frank writes: A new research reveals the extent of corruption in Australian organisations and highlights the insidious crimes committed by white collar criminals.
All forms of economic crime are up with 57 per cent of Australian organisations reporting an incident in the past two years, compared to 45 per cent in the last survey. Globally, the number of incidents reported was lower at 32 per cent and in the Asia Pacific region only 37 per cent.
“Typically Australian organisations have always reported more incidents of economic crime but that doesn’t mean we have more, quite the opposite. Results from this year’s survey confirmed what we suspected; Australian organisations take a more serious approach to detecting, investigating and reporting economic crime than other countries,” PwC Partner and Forensic Services Leader, Malcolm Shackell explained.
Over the past two years, two thirds of Australian organisations (67%) reported an incident committed by an external party to regulatory bodies including law enforcement. In the same period two-fifths (39%) reported an incident committed by an internal party to regulators including law enforcement.
The ‘big five’ crimes include asset misappropriation, cybercrime, procurement fraud, accounting fraud, bribery and corruption, according to the report.
Cybercrime:
Cybercrime continues to be of concern to Australian organisations with one in 10 reporting financial losses of more than AUD $1 million from cybercrime in the past two years.
Close to half (43%)of the organisations surveyed ranked the theft or loss of personal identifiable information as the number one concern should a cybercrime attack occur, while a third (33%) were most concerned about the theft of intellectual property and data in general.
PwC Partner Richard Bergman said, “Cybercrime is not just an IT issue. Recent high profile data breaches such as the US Target breach have increased the level of awareness and concern among senior management and the Board. But, the majority of cybercrime incidents still don’t make the headlines.”
“Information is valuable and attackers are determined to get it. Many of the attacks we’ve recently investigated have targeted merger and acquisition information and what surprises many organisations is how long attackers are inside their networks before the attack occurs.”
Procurement Fraud:
Procurement is a risky business according to a PwC survey released today which found that one third of Australian organisations (33%) experienced procurement fraud during the past two years with the mining, construction and energy sectors reporting the most incidences during that period.
According to the Australian edition of PwC’s 2014 Global Economic Crime Survey, procurement fraud was the third most frequent economic crime experienced by organisations in Australia and around the globe during the two year survey period. Asset misappropriation was number one followed by cybercrime.
Mr Shackell said most of the crime occurs where money leaves a business with a surprisingly high amount in the procurement process of awarding contracts to companies.
A common example is inappropriate relationships between a middle management insider who can authorise payments and an external contractor. The outsider might inflate invoices which are paid by the company, with the pair pocketing the extra.
Malcolm Shackell said, “Detecting and responding to any type of economic crime is challenging but procurement fraud is probably one of the more complex and difficult.”
“Procurement supply chains have many links. All of the links are susceptible to weakness and offer opportunities for employees and external providers to exploit. We see this type of fraud in contracting, inappropriate supplier relationships and the supply and disposal of goods and assets – anywhere the money is flowing.”
According to the survey results, Australian organisations are experiencing procurement fraud mostly around vendor contracts and maintenance. Globally, vendor selection is where it is most prevalent.
To stop or at least reduce procurement fraud which in turn will improve productivity, Mr Shackell suggests organisations have a greater focus on scrutinising contractors and relationships with other third parties.
“Organisations need to understand the profile of the people they are most at risk from, internally and externally, to ensure they have the right preventative controls in place,” he said.
According to the survey the majority of fraud is committed by someone internally (51%) with the following characteristics:
Increasingly in middle management roles (65% in 2014 up from 45% in 2012),
Aged between 31-40 years old (52% in 2014 down from 55% in 2012),
Predominantly male (57%); and
Increasingly qualified graduates (30% in 2014 up from 10% in 2012).
For companies acting overseas, the biggest risks include corruption, money laundering and antitrust behaviour.
Australia has also seen a rash of insider trading cases recently — where people seek to profit on the stock market through insider information.
One high profile example saw an Australian Bureau of Statisctics worker who allegedly leaked market-sensitive information to a former university friend, netting the pair $7 million according to police. ABS acting statistician Jonathan Palmer told a Senate hearing into the issue the breach was unprecedented but “it’s a very difficult threat to counter.”
“If someone has a trusted need to access the number and they only have to leak an aggregate number or communicate in some obscure way that the number is contrary to market expectations, there’s no requirement for them to take [numbers] out of the building,” Mr Palmer said.
PwC’s 2014 Global Economic Crime Survey: The Australian Story –
Corruption: From the backroom to the boardroom
Derek Easterby