PwC’s Global Economic Crime and Fraud Survey 2018 reveals that 49% of global and 39% of Swiss organisations experienced economic crime in the last 24 months.
Could this mean that the problem is diminishing? Or are Swiss organisations simply not aware they have already fallen victim to economic crime?
In this blog post we will be examining the true nature of the threat and exploring whether companies be taking smarter measures to combat economic crime.
Does an apparent decline in fraud reflect the true story?
Despite a number of recent high profile fraud cases globally, PwC’s Global Economic Crime Survey suggests that the problem isn’t proliferating in Switzerland. The percentage of Swiss organisations who have experienced fraud in the last two years has decreased from 41% in 2016 to 39% in 2018. This figure looks even more positive when compared with the global (49%) or western European (45%) results. But is the result really that good?
We believe it isn’t. The survey data reveals some disconcerting facts.
Bribery and corruption are increasingly on the radar. In 2018, 27% of the Swiss respondents reported that they had been asked to pay a bribe, up from 9% in 2016. One in five respondents (20%) believe that their firms lost an opportunity to a competitor who paid a bribe within the last 24 months, up from 11% in 2016. While this shows growing awareness of, and confidence in acknowledging bribery and corruption, it also suggests that companies have to become even more alert to the threat of the problem and its implications in terms of competitiveness.
Secondly, the mean direct loss attributable to each incident of fraud in Switzerland was almost CHF 10 million – more than five times the global figure. While this may be due in part to the size of the Swiss economy and the prominence of banking and financial services sector– a particularly attractive target for fraudsters – it demonstrates that this is not a trivial problem. The size of monetary damage is significant.
Fighting fraud blindfold, or with eyes wide open?
While the lower fraud level reported in Switzerland may be due to an effective legal framework and law enforcement system, it could also reflect a temptation for organisations to overestimate the effectiveness of their systems and controls. Only one in three (33%) Swiss respondents performed a general fraud risk assessment over the two-year survey period which is substantially less than respondents globally (54%). Against this backdrop there’s a considerable risk that economic crime will go unnoticed and unreported, especially if an organisation doesn’t have access to management reporting concerning fraud.
Fraudsters down but not out, and moving quickly with the times
Swiss respondents reported that asset misappropriation (51%) and cybercrime (44%) were the two most common types of fraud experienced by their organisation with the latter also being perceived as a significant threat in the future. In order to be adequately prepared, organisations need to keep track of changes in the overall fraud risk landscape and the fact that Swiss respondents recognise cybercrime as the most significant risk going forward is encouraging.
However, our survey – both globally and in Switzerland – suggests that there’s still a failure to recognise the true nature of the threat, especially with growing business and consumer digitisation, the increasing sophistication of attacks, and heightened data security expectations amongst stakeholders. As the latest digital technologies help fraudsters become more strategic in their goals and more sophisticated in their methods, companies urgently have to make cybersecurity – the mitigation of cybercrime – a boardroom priority.
Unlike other types of fraud, cybercrime is a means to commit other types of fraud rather than being a stand-alone offence. Three in ten Swiss respondents suffered disruption to their business processes after having been the victim of a cyber-attack. More than a quarter of Swiss respondents (28%) were a victim of extortion and more than a fifth (23%) reported that a cyber-attack was used as a conduit to commit asset misappropriation against their organisation.
Efforts have to be more intelligent and better coordinated
While the 2018 survey shows that Swiss firms are taking cybercrime seriously, it also suggests that they need to work harder to be in line with global standards. Best practice organisations have adopted a ‘three lines of defence’ model, dividing responsibilities between functions that own and manage risk, those that oversee or specialise in risk management and those that provide independent assurance. It’s important to ensure that each of these functions also adequately addresses cyber risks.
In reality, only 54% of Swiss respondents have an operational cybersecurity programme, 5% below the global average and 7% below the average for Western Europe. Overall the global survey reveals serious blind spots when it comes to recognising the specific risks of fraud and economic crime. The trick is to recognise these blind spots before any fraud incident takes place. While it’s encouraging that 92% of Swiss firms expect to either significantly increase (6%), increase (25%) or maintain (61%) the amount of funds used to combat fraud, the issue is more about how these funds are actually spent. Presently, the stumbling block is often a lack of coordination and a failure to see the big picture.
The areas of a business that investigate fraud, manage fraud risks and report to the board or regulators are often disjointed and siloed. If each department builds a programme based on their own perception of fraud, operational gaps will eventually arise. So it’s vital to ensure all stakeholders understand the big picture of fraud risk management and how their own function fits into it. For global companies, establishing a centralised fraud detection and investigation function is a very good starting point.
And for any organisation, we can suggest four golden rules of effective fraud prevention:
Instant takeaway: four steps to fight fraud
- Recognise fraud when you see it
- Take a dynamic approach
- Harness technology
- Invest in people, not just machines
Follow these rules of thumb and you’ve already increased your chances of navigating an increasingly complex economic crime landscape. If you want to find out more, check out PwC’s Global Economic Crime and Fraud Survey 2018, and the deep dive into the Swiss findings ((link)), or contact us for a more in-depth conversation about how to tackle fraud and economic crime.