Organisations are still not taking sufficient measures to protect themselves against fraud, and they are not harnessing new technologies effectively to do so according to the Malaysia edition of PwC's Global Economic Crime and Fraud Survey 2018.
Economic crime in Malaysia has risen over the last two years (experienced by 41% of respondents, vs 28% in 2016), against a backdrop of similar global trends. Business conduct/misconduct takes the top spot (45%), overtaking asset misappropriation (41%) and bribery and corruption (35%) as the most pervasive economic crime in Malaysia.
“Organisations are feeling the pressure to weed out fraud at the highest levels, especially with declining public tolerance for bribery and corruption. We believe they can start by tackling the root of the problem: organisational culture,” said PwC Malaysia managing director Sridharan Nair.
“It’s encouraging that 75% of our respondents have a formal business ethics and compliance programme in place, highlighting that a change from within should be an active ingredient in the remedy against fraud and economic crime. For such measures to be effective, C-suite executives themselves should encourage employees to speak up and report dishonest behaviours without fear.”
Equal weightage for corporate controls to effectively minimise risks
While having a strong corporate culture advocating zero tolerance towards fraud is important, economic crimes could still fall through cracks without sufficient controls in place, said PwC Consulting Associates Malaysia partner and forensic services and risk consulting leader Alex Tan.
The study shows that only 27% of respondents detected fraud through corporate controls, such as suspicious activity monitoring and internal audit. Disparate processes like weak internal controls often lead to poor internal transparency, impacting trust among employees.
Being reactive can also damage your company’s reputation or brand strength. This is a concern, considering the level of preparedness among Malaysian companies. 19% of respondents have not performed any form of risk assessment in the last two years (almost double the global average). 48% of respondents spent an amount that was equal to or more than the cost of the fraud itself to investigate and rectify issues.”
Harnessing technology, especially disruptive ones
While nearly half of Malaysian respondents reported being targeted by cyber-attacks in the past two years, 36% do not use technology at all to monitor fraud and economic crime, while 26% do not know if technology is being used.
However, when companies do use technology, almost all of them agree that there are benefits, with 75% of respondents saying that technology enables monitoring in real time, and 72% saying they derive actionable insights from their monitoring activities.
Malaysian respondents are also lagging behind in the adoption of artificial intelligence (AI). 85% have no plans or are not aware of any such plans to implement AI or advanced analytics.
“Organisations need to recognise that implementing disruptive technologies – which would allow for anomalies to be detected more effectively – may be expensive, but worth the investment,” said Mr Tan.
While fraud will never be completely eradicated and there will always be individuals who harbour the intention of committing economic crimes, it is up the organisation to make it difficult for them to do so to the point where it deters them from even trying.
“Take a more proactive approach to make sure that your corporate culture, internal controls and usage of technology are strong enough to help you withstand economic crime. The results will follow soon enough,” he said.