Financial crime on the up in the Middle East, shows PwC survey

06 March 2020 Consultancy-me.com

Fraud and financial crime is on the rise in the Middle East, according to the latest survey from professional services firm PwC, but there may be some broader local issues hidden in the data.

PwC’s latest business crime survey has revealed a steep rise in financial crime in the Middle East during the past two years, with nearly half of all local companies reporting at least one occurrence over that period. While the 46 percent rate of incidence is on par with other parts of the world, it represents a sharp regional increase from the 36 percent rate recorded in 2018, with fast-growing levels of ‘procurement fraud’ of particular note in the region.

Conducted every two years over the past decade, the 2020 edition of PwC’s Global Economic Crime and Fraud Survey canvassed 5,000-plus respondents across almost 100 territories, with around two thirds of participants from the C-suite and just under three quarters representing businesses bringing in revenues in excess of $10 million. Together, the surveyed companies reported $42 billion in losses over the past 24 months due to financial crime.   

At the global level, customer fraud was the most common occurrence of crime across all industries, but as might be expected especially so in the consumer and financial services segments, while cybercrime, asset misappropriation and bribery & corruption all had frequency rates of above 28 percent and pushing to 34 percent. At the other end of the scale, tax fraud and insider or unauthorised trading were noted at a frequency of 10 percent or less.

Most common financial crime types suffered by businesses globally

In the middle of the range sits ‘procurement fraud’, described as a traditional fraud type where for example known associates are favoured with vendor and supplier contracts – which was globally averaged at a 19 percent frequency rate. In the Middle East however, 42 percent of the businesses across the eight countries of the survey reported at least one incidence of procurement fraud over the past two years, with the figure almost doubling from the prior survey.

Rather than harmless back-scratching, 20 percent of local companies also cited procurement fraud as one of the most disruptive crimes to hit their business, a figure well above the global response rate of just 6 percent. As per the global trend, customer fraud has also jumped markedly in the Middle East, from a 36 percent rate last survey to 47 percent this time around, while bribery & corruption continues to be an issue of particular note in the region.

Here, however, the data begins to look a little muddled. Some 45 percent of regional organisations stated that they had uncovered bribery or corruption cases over the past two years, as compared to the global average of 30 percent, yet just 18 percent stated that they had been asked to pay a bribe in that time – considerably lower than the 29 percent global average. Similarly, incident-reporting at board-level is lower, yet the number of investigations is higher.

Financial crime responses in the Middle East vs. global averages

The local inconsistencies, especially around so-called ‘traditional’ fraud types, together begin to paint a broader picture. As noted by PwC, the sharp rises in some categories might from an optimistic view suggest that organisations are becoming more effective at identifying and assessing fraud. However, the firm continues, a detailed look at the results indicate that regional organisations are still not tackling economic crime in a comprehensive and consistent way.

“These figures suggest a gap between the good intentions of Middle East organisations to prevent and detect fraud and other economic crimes, and their ability to improve their performance in this area,” states the report, noting that the anti-fraud commitments of local businesses compare well to their counterparts abroad, with 63 percent of regional respondents against 44 percent globally having implemented/enhanced internal controls following an incident.  

“A greater focus is needed to deploy the right talent and technologies to proactively build anti-fraud frameworks that allow businesses in the Middle East to identify fraud risks, respond quickly and ultimately emerge stronger,” concludes Achraf El Zaim, PwC Middle East’s Forensics Leader, with global practice head Kristin Rivera adding; “Collecting the right data is just the first step. How the data is analysed is where companies will have an advantage when fighting fraud. “