Customer Fraud Tops List as Most Disruptive in Global Survey

A recent global survey by PwC has revealed that customer fraud is not only the most common type of external fraud but also the leading cause of all crimes experienced worldwide.

Prevalence of Customer Fraud

The survey found that 26% of respondents reported experiencing customer fraud, which is particularly prevalent in the financial services and consumer markets sectors. This trend may continue to grow as more industries shift towards direct-to-consumer strategies. However, it’s worth noting that customer fraud is currently underrepresented in Luxembourg due to its retail-focused nature.

Third-Party Fraud

In contrast, third-party fraud accounted for 19% of reported incidents. Many companies outsource non-core competencies and fail to properly address the associated risks. Only half of respondents had a mature third-party risk programme in place, and 21% had no due diligence or monitoring process at all.

Internal Controls

The survey also highlighted the importance of internal controls, noting that fraud committed by senior management (26%) is often particularly insidious due to their ability to override or conspire to override internal controls. In Luxembourg, only 5% of respondents reported being accused of fraud, corruption, or other economic crime.

Cost of Fraud

The report emphasized the complexity and cost of fraud, including:

Direct financial losses
Fines, penalties, response costs, and remediation expenses
Brand damage
Loss of market position
Employee morale

Globally, 13% of respondents reported losing more than $50 million due to fraud in the last 24 months. The top five costliest frauds were:

Antitrust
Insider trading
Tax fraud
Money laundering
Bribery and corruption

Recommendations for Prevention and Detection

The survey’s findings highlight the need for companies to prioritize fraud prevention and detection, particularly as they increasingly shift towards direct-to-consumer strategies. By implementing robust processes and technology, organizations can effectively mitigate the risk of customer fraud and other types of economic crime.

Some key recommendations include:

Implementing robust internal controls
Conducting regular due diligence on third-party vendors
Establishing a mature third-party risk programme
Providing training and awareness programs for employees
Regularly monitoring and reviewing financial statements and transactions

By following these best practices, organizations can reduce the risk of fraud and protect their reputation and finances.