Dubai: Unlike murder, rape, robbery or any other acts of street violence, financial crime is something most people simply don’t care about, yet it continues to affect a growing number of companies in the UAE and other parts of the Middle East, according to a new report.
These illegal activities, also known as white collar crimes, cost companies billions of dollars a year and they include money laundering, bribery, corruption and cybercrime. Not only are these crimes putting company finances at risk, they’re also endangering hundreds of jobs. Doesn’t the Lehman Brothers collapse, which rendered 26,000 employees jobless in 2008, ring a bell?
A recent study by PwC showed that economic crimes were reported in 26 per cent of companies in the Middle East in the past 24 months. Although the number is lower than the global average, it went up by 5 per cent from 2014, suggesting that more incidents have been reported recently.
The PwC Middle East Economic Crime Survey for 2016 showed that asset misappropriation, experienced by 61 per cent of companies in the region, is the number one corporate crime in the region. Second on the list is cybercrime, reported by a third (30 per cent) of companies.
Procurement fraud, which can include an employee accepting a “favour” or “gift” of high value in exchange of a purchase contract, was reported in a quarter (25 per cent) of organisations, while bribery and corruption occurred in 24 per cent of companies.
Accounting fraud, human resources fraud and money laundering affected 17 per cent, 13 per cent and 14 per cent of the firms, respectively.
PwC also noted that while the majority (92 per cent) of the respondents don’t consider bribery as a legitimate practice in their companies, about six per cent said they have actually been asked to pay a bribe in the last two years and 9 per cent said they lost business to a competitor in the process.
These illegal acts were committed by so-called “internal parties”, with more than three in ten (33 per cent) of the economic crimes found to have been the doing of company staff.
More than 290 respondents, including finance managers, auditors, compliance and risk management professionals, participated in PwC’s survey, with the highest number (30 per cent) coming from the UAE.
The survey findings indicate that economic crime is changing significantly, but the detection and controls set up by companies are not keeping up with the pace of change. “Further, the financial cost of each fraud is on the rise,” said the report.
According to the survey, one in four companies have not done a single fraud risk assessment in the last 24 months, while 17 per cent are discovered by mere accident.
“It takes continuous efforts to combat the persistent issue of economic crime. Over the year it has been proven that managements who have put in place strong anti-fraud programmes have preserved the value and reputation of their organisations and gained the trust of stakeholders through demonstrating its ability to deal with such complex issues,” said Tareq Haddad, PwC partner, Middle East investigations leader.
“ Such programmes must include a proper fraud risk assessment and putting effective mechanisms in place to deter, prevent and detect fraud. Furthermore, an organisation’s reaction to fraud incidents and continuous improvement of its systems over time is key to mature its abilities to manage the risk of fraud.”