2020 Fraud And Economic Crime - Opportunity In The Face Of . - PwC
2020Fraud and EconomicCrime – opportunityin the face of adversityPwC Kenya Economic Crime and Fraud Surveywww.pwc.com/ke
The news and topics that have been pervasive in theairwaves and social media lately are depressinglyfamiliar and concern theft and loss of resources. Theamounts being discussed are also becoming largerwith each newscast. Cases of inflated contracts,fraudulent and corrupt deals and collusion in many ofthe organisations as business and organisations counttheir losses as they reel from the economic crimes.The news make for depressing reading and point to avicious cycle and a race to the bottom.As per the GDP growth indicators released by theWorld Bank1, the Kenyan economy grew by 5.7% in2019 and is further projected to grow by about 6% in2020. Despite this reported growth, many businesseshave had to tighten their belts to ride out what hasbeen a challenging business environment. TheGovernment is also facing a tough task balancing itsbooks as the economic belts tighten further and thegap between revenue targets and collections widen.Within the last two years covered by this survey, therate capping law that was introduced in late 2016was in place for most of the period, having only beenabolished in November 2019. The squeeze on creditin the period it was in effect saw small and mediumsize businesses struggle to access financing therebyhindering their respective growth agenda.In the same period, the Central Bank of Kenyareplaced the 1,000 shilling note in an attempt to fightcorruption and illicit flow of money in the economy.The efforts to counter laundering of proceeds of crimein the financial sector also saw the Central Bank ofKenya enforcing relevant provisions of the Proceeds ofCrime and Anti-Money Laundering Act (“POCAMLA”)and regulations and demanding financial institutionsto demonstrate that their compliance programmes areadequate and effective. The KRA has also cranked upefforts to ensure tax compliance through concertedpursuit measures against tax cheats.The Government also enhanced its efforts in the fightagainst corruption with high profile arrests being madeby the DCI and numerous graft cases being broughtto the courts. A number of impeachment cases onaccount of alleged graft have also been broughtagainst high profile politicians.Economic crimeFor over 20 years PwC’s Global Economic Crimeand Fraud Survey has looked at a number of crimes,including:Despite these efforts, a number of questions remainrelevant: are we doing enough? Are we matchingup to economic criminals as they innovate and uptheir game? Are we prepared to not only embracethe increasingly sophisticated technology designedto deliver the much desired efficiencies and greatcustomer experience but also deal with the techenabled economic crime threats? Accounting/FinancialStatement Fraud Human ResourcesFraud Anti-Competition/Antitrust LawInfringement Insider/UnauthorisedTrading AssetMisappropriationIntellectual Property(IP) Theft IP Our Survey this year seeks to provide some insightsinto these questions as well as assess the extent towhich the effective management of economic crime ishaving a positive impact on Kenyan organisations. Bribery and CorruptionMoney Launderingand Sanctions Customer Fraud Procurement Fraud Cybercrime Tax Fraud Deceptive try/kenya/overview2 2020 PwC Kenya Economic Crime and Fraud Survey
By the numbers –Our survey findingsWhen Fraud Strikes: Incidents Of Fraud2020 saw a decrease in the reported incidentsof fraud over the 24 month survey period.In this Report, we share insights on the typesof economic crimes being perpetrated, whois committing the crimes, attitudes towardseconomic crimes and the steps successfulorganisations are taking to combat the vice.5,000 respondents globally, with102 drawn from Kenya62%of the respondents fromorganisations with US 10m in global revenues99territories globallyparticipated in the surveyKsh5.5bwas lost by Kenyanrespondents58%of Kenyan respondents told usthey experienced economiccrimes in the past two years,down from 75% in 2018, butstill higher than the Globalaverage of 47%44%of Kenyan companies thatexperienced economic crimeshad between 6-10 incidentsreported in the last 24 monthsTop4 typesof fraud1234Bribery & CorruptionProcurement fraudAsset misappropriationCustomer fraudThe reported incidences of Procurement fraud in Kenya is more than double the global average and Procurementfraud was also noted to be the most disruptive. Globally, Customer fraud and Cybercrime led the pack.3 2020 PwC Kenya Economic Crime and Fraud Survey
Breaking down Economic CrimeTypes of Economic Crimes experiencedOtherTax FraudProcurement FraudMoney Laundering and SanctionsTypeIntellectual Property (IP) TheftGlobalInsider/Unauthorised Trading2018Human Resources Fraud2020Deceptive business practicesCybercrimeCustomer FraudBribery and CorruptionAsset MisappropriationAnti-Competition/Anti-Trust Law InfringementAccounting/Financial Statement Fraud0%10%20%30%40%50%60%Incident rateSource: PwC’s 2020 Global Economic Crime and Fraud SurveyMost disruptive Fraud eventsKenyaAfricaGlobal12ProcurementFraudBribery andCorruptionAccounting/Financial statementfraud15%14%14%Bribery andCorruptionAccounting/Financial ybercrimeAccounting/Financial statementfraud16%16%14%Source: PwC’s 2020 Global Economic Crime and Fraud Survey4 2020 PwC Kenya Economic Crime and Fraud Survey3Procurement fraud and Bribery &Corruption, have a correlation in our part ofthe globe, with various cases of rent seekersin procurement deals seeking to profit illicitlyby asking for facilitation fees or kickbacks.Incidentally, about a third of therespondents reported having been asked topay a bribe in the past 24 months.
The Perpetrators: Who is committing these crimes?Organizations face multiple threats in terms ofwhere the next economic crime attack wouldoriginate. It could be internal; from the Board,management, operations staff; it could alsobe external; your customers, organized crimesyndicates, suppliers; or a joint effort whereboth internal and external parties collude.In the past, most of the incidents wereperpetrated internally, however in most casesthere is an element of collusion with externalactors.In Kenya and in Africa, internal parties werereported to have been the most commonperpetrators of economic crime unlike globallywhere the incidents by external perpetratorswere higher.Top perpetrators1. Customer – 43%External perpetrator27%2. Vendor/supplier – 34%(30% in 2018)3. Agents/intermediary – 17%1. Operations staff – 53%Internal perpetrator36%(62% in 2018)2. Middle management – 28%3. Senior management – 18%*the rest did not know or preferrednot to stayCollusion between internaland external32%Source: PwC’s 2020 Global Economic Crime and Fraud SurveyOperations staff: Fraud committed byoperations staff was the highest of the fraudattributed to internal actors at 53%. It could bean indication of the ineffectiveness of controlsat lower levels or more daring attempts byjunior staff. Middle level management werethe most active group of internal actors in2018 (decreased from 41% to 28%). Kenya,however, seems to be the exception, aselsewhere, senior management were reportedto have committed more fraud.Customer fraud: Customer Fraud continuesto be rampant topping the list of externalperpetrators of economic crimes at 43%of externally perpetrated economic crimes.Instructively, whereas Customer Fraud is themost prevalent globally at 35%, it is lower inKenya where the prevalence rate is 32%.Vendors and suppliers: As more companiesinvite vendors and other third parties intotheir organisations’ operating environments5 2020 PwC Kenya Economic Crime and Fraud Surveythrough outsourcing of various services,they expose themselves to risks from partiesseeking to illicitly enrich themselves at theirexpense. With 34% of economic crimesattributed to these third parties, this paints ascary picture as to the level of trust neededand risks organisations face in the businessenvironments they are forced to operate in.Accused of fraud? In a new question,we sought to find out if the respondents’organisations had been accused ofperpetrating economic crimes. 18% of therespondents (and 15% globally) reportedhaving been accused of economic crimes.From the global survey results: In almost equal numbers, competitors,regulators, employees, and customers weremost likely to point the finger. Enhanced regulatory focus, and in someterritories, whistleblower incentives maycontribute to this trend.
How extensive is the damage? Cost of fraudCumulatively, the cost of economic crimes canbe devastating.Diving InIn addition to the direct financial losses,organizations are exposed to fines andpenalties by regulators, claims from affectedthird parties and damage to their brand andreputation, as well as dampening of employeemorale, especially collateral victims notinvolved in the crimes.36%of Kenyan respondents that experiencedeconomic crimes lost overKShs10millionwith 2%reporting losingin excess ofKShs500millionSome economic crimes such as MoneyLaundering, Bribery & Corruption, can haveuntold consequences, as some of these crimesare subject to laws in multiple jurisdictions.This is especially so for multinationalorganisations listed in the US and UK stockexchanges where Bribery and Anti-Corruptionlaws transcend borders. Fines from regulatorscan cripple organisations found on the wrongside of these laws.Six costliest frauds in Kenya123Procurement Fraud15%Bribery & Corruption14%456Asset Misappropriation12%Customer fraud12%Money laundering & sanctions12%Accounting/ Financial Statementfraud14%6 2020 PwC’s Global Economic Crime and Fraud SurveyBribery and Corruption remain a bigchallenge not just in Kenya. A third ofrespondents both globally and in Kenyareported being asked to pay a bribe orhad lost an opportunity to a competitorwho they believe paid a bribe.39% of respondents reportedexperiencing Procurement fraud, whichwas significantly higher than the globalaverage of 19%. Ranked as the secondmost prevalent form of economic crimein Kenya, it was also the costliest andmost disruptive type of economic crimeexperienced by Kenyan respondents.It is encouraging to note the level ofawareness and response to the risk,with 70% of the Kenyan respondentsputting in place programmes in theirorganisations to deal with Bribery &Corruption, higher than the globalaverage of 39%. 56% of the Kenyanrespondents also reported having adedicated programme to address therisk of Procurement fraud, a figure that isalso more than twice the global average.
Combating economiccrimesTaking action: Being preparedCombating economic crime is usually acontinuous process that adapts and changesto match the innovative nature of fraudsters.It is sometimes argued that some of the mostcreative research and development ideasoriginate from fraudsters, who come up withnovel ways to beat controls and safeguards.What is your organization investing into stay ahead of the fraudsters?More than half of the organisations havedocumented risk-based due diligence andongoing monitoring processes for thirdparties as well as dedicated programmes toaddress Bribery & Corruption, Accounting/Financial statement fraud, employee fraud andProcurement/ vendor fraud.We further found that: 4 out 10 respondents either don’t performor perform only informal risk-based duediligence and ongoing monitoring of thirdparties.84% of respondents have formaldocumented policies and procedures andcontrols for key compliance areas, morethan the global average of 64%.7 2020 PwC’s Global Economic Crime and Fraud Survey A third of the organisations perform limitedtesting of the effectiveness of the controlswith 5% not carrying out any tests.84%of respondents have formaldocumented policies andprocedures and controls for keycompliance areas, more thanthe global average of 64%What are the most effective actions?1. Robust risk assessments. Obtaining inputfrom both internal and external stakeholdersand continuously updating the approachof carrying out the assessments as risksare dynamic and fraudsters are highlyadaptable.2. In addition to employing technology,investing in the right expertise,governance structures and monitoringmechanisms. Advanced technology byitself is not sufficient to combat economiccrimes.3. Reaction time. Deploying the right toolsand personnel to investigate and addressa potential economic crime is critical. Itenhances controls by deterring fraudsters inthe first place.
Rise of technologyTaking action: Keeping upAs organisations strive to be more efficient andbetter serve an ever-growing client base, theycontinuously adopt more complex technology.As this happens, attacks aimed at the systemsor designed to utilize these systems alsobecome more sophisticated in scale andmethodology. As such, organisations have nooption but to invest in ever more complex antifraud technology.This unfortunately increases the risk of thetechnology employed being ineffectiveespecially where knowledge of how suchtechnology works is limited to a few individualsin the organisation. There is also a risk thatorganizations will erroneously assume thatthe technology they have invested in, sinceadvanced, can in isolation of other measures,protect them from fraud.(NLP), Natural Language Generation (NLG),Voice Recognition and Machine Learning;Kenyan respondents highlighted BiometricAuthentication as the most widely and beneficialAI technology with 34% of Kenyan respondentsinstalling and deriving value from it.Biometric technology has been refinedover the past few years with deploymentof fingerprint readers and facial recognitionsoftware improving tremendously. Smart phonedevelopers have been key in fast trackingthe development and widespread use of thistechnology.According to our respondents, cost, limitedresources to run/handle results and lack of(appropriate) systems were the top threereasons preventing their organisation fromWe asked our respondents what alternative/disruptive technologies/techniques they have invested inand whether they find value in it helping combat fraud and other economic crimes and found that:Technology% Currently usingand finding valueCommunications Monitoring57%Transaction Testing / Monitoring55%GRC (Governance Risk and Compliance) Solutions47%Anomaly Detection41%Contract or Other Unstructured Data Review35%Data Visualisation / Dashboards35%Pattern Recognition29%Predictive Analytics23%Artificial Intelligence (AI)14%Although AI ranked lowest, it is widely seen asthe future in crime busting technology. This isdue to its ability to harness big data and abilityto augment the other technologies and moretraditional methods of combating economiccrimes.Of the common AI technologies that alsoinclude Natural Language Processing8 2020 PwC’s Global Economic Crime and Fraud Surveyimplementing / upgrading technology in orderto combat fraud, corruption or other economiccrimes.Technology is dynamic, changing every sooften with new ones coming up every year.Who knows what novel technologies we shallbe discussing in 2 years’ time as the dancebetween economic criminals and organisationscontinues.
Our attitudes towards fraud78% of Kenyan respondents that reportedhaving suffered an economic crime conductedan investigation.This is commendable as it is important toestablish the facts around an incident toenable you improve your control environmentto prevent recurrence of similar incidents infuture.However, only 27% disclosed the matter toregulators/ law enforcement, with the majoritychoosing to keep and deal with the matterin-house. Should we be worried about theconfidence our organizations have in ourregulators and law enforcement agencies?Organisations adopted the following keysteps to better themselves as they reacted toincidents of economic crimes:1. Conduct an investigation – 78% - To get tothe root cause of the crime and establishthe facts.2. Disciplined/ Terminated employees - 63% Subject to labour laws and disciplinary andother related policies within organisations.3. Implemented enhanced internal controls –61% - Enhancing the controls in place tomake it more difficult for criminals targetingthe organisation.In Africa, cyber crime ranks amongst thetop areas of concern with 38% of CEOsciting it as a threatOnly31%of Kenyanrespondentsconducted trainingto staff following anincidentSource: PwC’s 2020 Global Economic Crime and Fraud Survey9 2020 PwC’s Global Economic Crime and Fraud SurveyTraining does not onlybetter inform staffof new policies andprocedures, it alsopromotes a strongerculture aroundfighting fraud and itis commendable howKenyan organisationsare keen to raiseawareness.
78%of respondents whoexperienced some formof economic crime inthe last 2 years believethat despite the negativeconsequences, theirorganization is in a betterplace as result of theexperienceSource: PwC’s 2020 Global Economic Crime and Fraud Survey10 2020 PwC’s Global Economic Crime and Fraud Survey
Taking stockEveryone would want to avoid falling victim toan economic crime, and whether it is by luckor being prepared, the best outcome mostwould prefer is sailing through unnoticed andunscathed by criminals.The monetary loss, time and resourcesspent in dealing with economic crimes canbe significant. However, as observed in thesurvey, it can result in a turn for the good, anawakening call and change of attitude towardsfraud risk and potentially a transformation ofthe organisation’s operations.74% noted an enhanced tone at the topand control environment in addressingeconomic crimes following an incident, with67% experiencing streamlined and improvedoperations as well as fewer repeats of theincidents.20% of the organisations noted improvementin employee morale and there was a notedimpact in financial performance with 28%seeing a reduction in losses of which 9% sawimprovements in revenues and profitability.On the flipside, 33% suffered damaged brandtrust and reputation, 34% noted a decreasein revenues and profitability and 29% sawan increase in losses and lowered employeemorale.Depending on how the organisation prepareditself, it can come out more resilient at the endof the crisis or, in a more extreme case, orcease to exist altogether.Almost 92% said they experiencednegative emotions after an incidentof fraudThe most commonfeelings were frustrationand anger33%suffered damaged brandtrust and reputationSource: PwC’s 2020 Global Economic Crime and Fraud Survey11 2020 PwC’s Global Economic Crime and Fraud Survey
Emerging stronger: Measuring successGiven the ever present and evolving threatof economic crime that keeps organisationleaders awake and alert, as well as otherbusiness issues that compete for attention andresources from management, how do businessleaders navigate and address the fraud risks atthe same time?Quantifying the benefits and successes of anelaborate fraud fighting system is not easy. Insome cases, it is akin to proving a negative,which in itself is an arduous task. That is whyin some organisations, the default attitudeis to only invest in combating economiccrimes where they have fallen victim in thepast or where there are mandatory regulatoryrequirements to have measures put in place.Investment in proactive fraud fighting toolsand resources are for such organisations not apriority.It can be challenging to quantify the benefitsof a fraud-fighting tool. Effective fraudprevention measures do reduce the quantityand magnitude of future fraud. But here’s amore interesting statistic – there is a clear linkbetween fraud prevention investments madeupfront and reduced cost when a fraud strikes.From the manner in which the economic crimes were detected:12% 10% 10% 8%through suspiciousactivity monitoringthrough routineinternal auditsthrough tip-offsthrough Fraud riskmanagementthe benefits of having proactive monitoring processes and whistleblowing hotlines in place are evident.Source: PwC’s 2020 Global Economic Crime and Fraud SurveyOnce you have a programme in place,periodic assessment and refinementis key. Why? From our global survey, we note thatbusiness models frequently evolve beforerisk programmes are established, leavingcompanies exposed to unexpected risks. There’s increasing convergence incertain industries that is heavily driven bydata — In Kenya, Telcos offer financialservices, banks are offering insuranceservices, health companies are enteringconsumer markets, etc — risk managementprogrammes need to be adapted to meetthose new or evolving opportunities andrisks.12 2020 PwC’s Global Economic Crime and Fraud Survey
Information that is unexpected from thecontrols in place, such as a hotline call,whistleblowing email or an audit findingmay yield a risk previously not considered.Where companies are slow to implementmeasures to mitigate economic crimes,regulators are moving in to give theorganisations a nudge to improve surveillanceand compliance programmes.In the East African region, especially in theFinancial Services Sector, we have observedthe regulators directing companies to provideevidence of compliance programmes andregular independent reviews.The benefits from these initiatives may not beimmediately visible as they may take a bit oftime for the effects to be noticed.13 2020 PwC’s Global Economic Crime and Fraud SurveyIn the East African region, especiallyin the Financial Services Sector,we have observed the regulatorsdirecting companies to provideevidence of compliance programmesand regular independent reviewsSome of the initiatives, e.g. training or thirdparty management programmes may also notbe easy to quantify, and this while providingorganisations with a challenge justifyingthe initiatives, also provides them with anopportunity to be trailblazers to set their keymetrics to measure the effectiveness of theseinitiatives.
In conclusionHow would you gauge your personalor organisation’s preparedness incombating economic crimes? Whatare your attitudes towards economiccrimes?Does it affect you or do you considerit someone else’s problem?Awareness is key prior to setting outon any program to address fraud andother economic crimes. Identifyingthe risks, keeping up with technologyand regulatory advancements armsyou with the requisite knowledgeto devise controls and initiatives tomitigate the risks.In the event you fall victim, it is alsouseful to be prepared with a wellthought out response mechanism andsystem.Economic crimes are dynamic andunpredictable, and the only way tominimize the risk is preparedness andadaptability.Finally, if well prepared you mayvery well emerge from an incident ofeconomic crime stronger and betterprepared to avoid future recurrence.14 2020 PwC’s Global Economic Crime and Fraud Survey
Contact usAt PwC, we carry out fraud risk assessments andcyber security assessments to help you identify keyrisks and threats. Our assessment teams are fastand cost-effective, combining global leading bestpractices and in-market experience. In addition, weprovide investigation services to detect economiccrime. Our regional team of dedicated specialists hasconducted some of the most complex and high profileinvestigations undertaken in Kenya and regionally inrecent years.Muniu ThoithiAdvisory & Forensics Leader,Eastern Africamuniu.thoithi@pwc.com 254 20 285 5684John KamauAssociate Director,Forensic Servicesjohn.kamau@pwc.com 254 20 285 5065Eric OwinoSenior Manager,Forensic Serviceseric.owino@pwc.com 254 20 285 5692At PwC, our purpose is to build trust in society and solve important problems.We’re a network of firms in 158 countries with more than 236,000 people whoare committed to delivering quality in assurance, advisory and tax services.Find out more and tell us what matters to you by visiting us at www.pwc.com.This publication has been prepared for general guidance on matters of interestonly, and does not constitute professional advice. You should not act upon theinformation contained in this publication without obtaining specific professionaladvice. No representation or warranty (express or implied) is given as to theaccuracy or completeness of the information contained in this publication,and, to the extent permitted by law, PwC does not accept or assume anyliability, responsibility or duty of care for any consequences of you or anyoneelse acting, or refraining to act, in reliance on the information contained in thispublication or for any decision based on it. 2020 PwC. All rights reserved. PwC refers to the PwC network and/or one ormore of its member firms, each of which is a separate legal entity.Please see www.pwc.com/structure for further details
3 2020 PwC Kenya Economic Crime and Fraud Survey 3 4 2 1 2020 saw a decrease in the reported incidents of fraud over the 24 month survey period. In this Report, we share insights on the types of economic crimes being perpetrated, who is committing the crimes, attitudes towards economic crimes and the steps successful
Types of economic crime/fraud experienced Customer fraud was introduced as a category for the first time in our 2018 survey. It refers to fraud committed by the end-user and comprises economic crimes such as mortgage fraud, credit card fraud, claims fraud, cheque fraud, ID fraud and similar fraud types. Source: PwC analysis 2
Types of economic crime/fraud experienced Customer fraud was introduced as a category for the first time in our 2018 survey. It refers to fraud committed by the end-user and comprises economic crimes such as mortgage fraud, credit card fraud, claims fraud, cheque fraud, ID fraud and similar fraud types. Source: PwC analysis 2
Card Fraud 11 Unauthorised debit, credit and other payment card fraud 12 Remote purchase (Card-not-present) fraud 15 Counterfeit Card Fraud 17 Lost and Stolen Card Fraud 18 Card ID theft 20 Card not-received fraud 22 Internet/e-commerce card fraud los
Handling Debit Card Fraud STRATEGIZE- Debit card fraud and disputes must have a strategy based on evolving fraud. INVENTORY - Inventory all types of debit card fraud and how you mitigate fraud. TRAIN - Train your front line and investigators. DOCUMENT - Clearly document the strategy and fraud management and
Fraud by any other name is still fraud “Relatively few occupational fraud and abuse offenses are discovered through routine audits. Most Fraud is uncovered as a result of tips and complaints from other employees.” Association of Fraud
Investigation Planning and Conducting a Fraud Examination 2016 Fraud Examiners Manual (International) 3.107 The fraud theory approach provides that, when conducting investigations into allegations or signs of fraud, the fraud examiner should make a hypothesis (or theory) of what might have occurred based on the known facts.
Detection of Fraud Schemes Fraud is much more likely to be detected by tips than by any other method. 2012 Association of Certified Fraud Examiners, Inc. 26 Detection of Occupational Frauds 2012 Association of Certified Fraud Examiners, Inc. 27 Why Employees Do Not Report Fraud According to a Business Ethics Study (Association of Certified Fraud Examiners), employees do not .
graduation, positioning them for college and careers. The grade level ELA standards begin in the Prekindergarten and Elementary ELA Standards section. Please see the introduction for more about how the anchor standards and grade level standards connect. New York State Education Department ENGLISH LANGUAGE ARTS LEARNING STANDARDS (2017) 4 NEW YORK STATE EDUCATION DEPARTMENT Reading Anchor .
