Fraud and economic crime rates remain at record highs, impacting companies in more ways than ever. PwC’s biennial survey of business crime reports that these incidents are costing businesses. Close to one in four respondents reflected that the direct financial losses they experienced amounted to US$50 million or more, with another 31 per cent saying it was between US$1 million to US$50 million1.

The Global Economic Crime and Fraud Survey examines over 5000 responses from 99 countries with 92 respondents in Singapore. The latest study marked a record high number of incidents experienced by Singapore-based companies within the past 24 months (42 per cent). Despite the record number in Singapore, it still falls below the global rate of 47 per cent.

Customer fraud tops the list of all crimes experienced in Singapore (at 46 per cent), up from 32 per cent in 2018. Businesses in Singapore and globally are aligned that customer fraud and cybercrime (41 per cent) are the most disruptive of all the crimes.

Michael Peer, Singapore Forensic Leader, PwC South East Asia Consulting said:

“While Singapore remains a safe place to do business, Singapore-based businesses cannot ignore the risks faced in an increasingly global economy. When companies do business across borders, they do not always know who they are dealing with – this poses third party risks such as the potential for fraud by overseas customers. Businesses must conduct the proper due diligence to understand who their customers are, making sure to consider details such as their financial and reputational standing.”

The report also highlights that larger companies in Singapore have reported higher occurrences of economic crime as compared to smaller companies. 24 per cent more companies with an annual revenue of over US$1 billion reported economic crimes or fraud (53 per cent) as compared to those under US$500 million (29 per cent).

The perpetrators: Who’s committing the fraud

Fraud hits companies from all angles – the perpetrator could be internal, external or in many instances there is collusion. In the last two years, there was a clear shift in origin from internal to external.

51 per cent of Singapore respondents said external perpetrators were the main source of their economic crime incidents, a stark rise from 31 per cent in the 2018 study. The proportion of internal perpetrators also fell from 54 per cent in 2018 to 28 per cent in 2020.

Taking the opportunity to improve

While each fraud incident is stressful for an organisation, it is also an opportunity for a company to improve its control environment.

However, in Singapore, only half of companies (51 per cent) conducted an investigation when the incident occured. Also, 69 per cent of respondents believed that they were in a similar or worse position after the incident compared to their situation prior to the incident. (28 per cent reflected worse place, 41 percent in a similar position).

Without a clear understanding of the root cause of the incident, it would be difficult for companies to take the appropriate measures to manage the risk and be confident that they have put the right controls in place to mitigate the risk of history repeating itself.

Looking at the bigger picture, companies in Singapore were not as well placed as their global peers. Globally, only 55 per cent of organisations felt that they were in a similar or worse place.

Singapore-based companies were also less likely to feel like they ‘acted as a team’ (47 per cent globally, 38 per cent in Singapore), ‘had access to key data information and leveraged it appropriately’ (39 per cent globally, 28 per cent in Singapore) and ‘prepared and followed a plan’ (43 per cent globally, 33 per cent in Singapore)

Behind the curve

Despite the increase in Singapore-based companies reporting fraud incidents, two in five (39 per cent) of them do not have any formal risk assessment in place to understand and evaluate their risk exposure.

Without a proper understanding of the risks that the company faces, companies will not be able to effectively develop plans to mitigate and manage these risks or better allocate resources across the organisation. Since 39 per cent do not have formal risk assessments, it is then unsurprising that a similar number (34 per cent) of Singapore respondents do not have formalised policies, procedures and controls to manage the incidents. There is also a small group of companies (7 per cent) that do not even have informal controls in place.

Michael Peer, Singapore Forensic Leader, PwC South East Asia Consulting concludes:

“Singapore-based entities are still reporting fewer incidents of economic crime than the global average, but this year’s results should be a warning that more needs to be done to maintain that position. While informal risk assessments may seem sufficient, this could lead to companies looking in the wrong places and only protecting against the most common crimes, bringing about a false sense of security.

“A formal risk assessment will allow companies to have a thorough view of where their vulnerabilities lie. Companies can then invest in the right places to mitigate potentially significant operational, financial or reputational impact. As the saying goes, it’s better the devil you know than the devil you don’t.”

Notes:

1. Note that there was a higher percentage of Singapore survey participants who belong to large organisations with revenue above USD 5 billion.

• Download the report at www.pwc.com/sg/fraudsurvey.
• The Global Economic Crime and Fraud Survey examined over 5000 responses from 99 countries between August and October 2019. In Singapore, there were 92 respondents.
• Customer fraud is defined as fraud against a company through illegitimate use of, or deceptive practices associated with, its products or services by customers or others (e.g. mortgage fraud, credit card fraud).
• PwC highlighted the global issue of upskilling in its 23rd CEO survey and identified that whilst retraining/upskilling was seen as the best way to close the skills gap, only 18% of CEOs have made ‘significant progress’ in establishing an upskilling programme. In order to take advantage of what technology can do for your organization, hiring the right people to work alongside new technologies is important. This is apparent even when hiring staff to support advanced technologies such as artificial intelligence and machine learning to uncover fraud.