Economic Crime Survey Highlights Risk of the 'Inside Job'

Almost four out of every five economic crimes were perpetrated by employees of their own companies, according to mainland China respondents to the 2014 PwC Global Economic Crime Survey – Mainland China, Hong Kong and Macau supplement (GECS, the Survey).  This is the highest proportion reported among all the BRICS countries (Brazil, Russia, India, China, and South Africa), which were also polled.


The survey shows that 27% of respondents in mainland China and 16% in Hong Kong and Macau report that they suffered economic crime during the last twenty-four months, compared to 32% in Asia Pacific and 37% globally.


The survey reported that 48% of mainland China respondents who suffered economic crime reported that procurement fraud was one of the most commonly encountered economic crimes, which most frequently occurred during the vendor selection, contracting and bid process stages. 


Asset misappropriation and intellectual property infringement also featured prominently in the Survey.  In mainland China, bribery and corruption remains a persistent risk, with 39% of respondents having experienced some form of bribery and corruption.  41% of the respondents expect this figure to rise over the coming two years.


"In mainland China, some of the recurring themes in the survey were bribery and corruption and procurement fraud," says John Donker, PwC China and Hong Kong Lead Partner, Forensic Services. "This is consistent with mainland and global authorities’ concerted and ongoing anti-corruption drive and we have already seen the Chinese government’s increasing efforts to address this."


Donker, however, adds that the prevalence of internal economic crime themes, including procurement and employee-driven fraud, suggests that many organisations in mainland China need to continue to focus effort on implementing and enforcing internal controls. 


"They need to address a lack of organisational transparency and ensure that they monitor suppliers and employee relationships,” he says.


Cybercrime and money laundering risk
Hong Kong’s advanced business sector and significant financial services industry continue to make it a tempting target for cybercrime.  In Hong Kong and Macau, 37% of respondents had suffered cybercrime.  In addition, 99% of respondents said that the risk of cybercrime has remained at a steady level or has increased.


“Ultimately, cybercrime is not strictly a technology problem but a strategy problem, a people problem and a process problem.  Organisations are not being attacked by computers but by people attempting to exploit human frailty as much as technical vulnerability,” said Mr Ramesh Moosa, PwC China and Hong Kong Partner for Forensic Services and Lead Partner for Forensic Technology Solutions.


The survey also shows that 37% of Hong Kong and Macau respondents had encountered money laundering, three times more than regional and global averages. “The concentration of Financial Services businesses in Hong Kong and risks faced by Macau’s large gaming sector combined with increased local and global regulatory activity makes this a significant area of future focus,” says Donker.


Missed opportunities to detect and prevent economic crime
Only 5% of respondents who reported suffering economic crime in Mainland China, Hong Kong and Macau cited the use of Data Analytics and Suspicious Transaction Analysis as a mechanism for detection compared with almost 1 in 4 globally. 


“Despite our global survey respondents indicating that it was one of the most effective mechanisms for detecting crime, the usage of Data Analytics and Suspicious Transaction Analysis as a fraud detection tool appears to be less common in Mainland China, Hong Kong and Macau. This could mean that companies are missing a trick and that economic crime is going undetected,” concludes Donker.

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