Businesses in Eastern Africa must act quickly to avert increasing cases of economic crimes and fraud that threaten their existence, the Global Economic and Crime Survey by renowned international audit firm, PricewaterhouseCoopers ( PwC) has recommended.
The 2022 survey revealed that 63% of respondents in Eastern Africa said they had experienced fraud within their organization, against 46% of respondents globally.
For instance, at least 23% of respondents in Eastern Africa reported that they had lost between $ 100,000 and $1 million in the last two years to fraud.
Evolving face of economic crimes
Yet the more worrying discovery is the evolving face of economic crimes. The survey reveals that as the technology has advanced, so has the portrait of economic fraud making it difficult for authorities to detect it and ultimately root it out.
The five most common forms of fraud reported by respondents in Eastern Africa were: Customer fraud, Asset misappropriation, Procurement fraud, Cybercrime, Bribery & corruption and supply chain fraud.
“The rise in customer fraud may suggest that organizations paid more effort to prevent internal fraud and may have overlooked rising external threats,” the survey noted.
From the survey the rise in electronic fraud in Eastern Africa was enabled by insiders in organizations in collusion with technologically savvy customers. This was very common in the mobile banking sector.
Another emerging pattern of the fraud, according to the survey was that of organization over relying on vendors (outside firms) to support their core business operation technology systems. This created a loophole for some vendors to siphon funds.
Supply chain fraud, the survey discovered was on the rise in Eastern Africa with 54% of respondents saying they had experienced this type of fraud in the last two years.
This type of fraud was manifested in: theft of goods, both internal and external; falsification of transactions and process manipulation by third parties; bribery, kickbacks and extortion by suppliers, intermediaries, government and abuse of logistics processes for private benefit.
Supply chain fraud was fueled by unfavorable contract terms; entrusting supply chain processes to third parties with no proper oversight; complexity of the supply chains together with the lack of knowledge by the persons in charge; poor planning and budgeting; and weak anti-fraud controls.
The survey also cites lack of integration of new technologies with legacy systems and lack of implementation of system security controls as other weaknesses that facilitated economic fraud in many organizations. Some organizations said the cost of installing new technology to detect crime was prohibitive while others had not made any effort to acquire it.
Related
Security controls within organizations were further weakened by the outbreak of Covid-19 which led to the laying off of some critical staff as firms fought to survive. This created cracks and openings for exploitation o The COVID-19 pandemic had a significant impact on
The pandemic also fueled cyber-crime, according to the survey because it forced organizations to digitize. In Eastern Africa, 28% of respondents
Many businesses were forced to transform rapidly to support remote working, which increased their reliance on hastily deployed Virtual Private Networks (“VPNs”) and remote administration technologies.
“Some organizations reduced the number of their IT security staff in response to economic challenges, depleting their cyber intelligence and threat monitoring capabilities and compounding the risks,” the survey notes.
In Eastern Africa, 28% of respondents confirmed that there was an increase in cyber risks in their organizations because of disruption caused by the Covid-19 pandemic.
What can be done?
Yet there is still room for redemption for organizations that are at risk of falling victims to economic fraud.
The report recommends that organizations should create a good ethical culture where employees and other stakeholders do not consider economic crime as a reasonable or rational action.
There needs to be enhanced intervention which encompasses effective detection of economic crime and response.
The survey calls for strengthening of internal controls to make it harder for anyone to perpetrate economic crime.
The report recommends continuous risk management to mitigate emergence of new types of economic crimes or evolution of existing typologies.