According to the new tool, reported cases of fraud increased from 355 in the first half of 2011 to 520 cases in the second half of the year. This is an increase of 46.4 percent. In the same period, the value of fraud decreased from US$7.17 billion to US$3.702 billion.
KPMG developed the Africa Fraud Barometer to form a bigger picture of fraud prevalence in Africa. “We felt that there was a need to create a tool like the Africa Fraud Barometer since the world has begun to look at Africa as a new investment destination,” says Petrus Marais, KPMG's Global Leader for Forensics, who developed the Barometer. “At the same time, we are still dealing with an often negative perception of Africa. We therefore see ourselves as risk analysts and would like to provide information that allows potential investors to assess and conceptualise risk on the African continent.” The Barometer distinguishes between the number of reported fraud cases, type of perpetrators, victims of fraud, type of fraud, countries and targeted industries. Data currently available captures the entire year of 2011. To obtain some indication of trends, KPMG compared findings from the first six months of the year to those in the second half.
Accounting for 29 percent of perpetrators, company employees committed the most fraud during the second half of 2011, according to the report. That is an increase of two percent from the first six months. Management committed the highest value of fraud at US$1.2 billion during the second half of 2011, as opposed to US$3.3 billion during the first half of the year. Hardest hit by fraud is government and the public sector, with 39 percent of all cases, five percent lower than in the first half of the year. There is however, a decrease in the number of cases reported, from 43 percent to 37 percent. “Fraud occurs most where money enters and exits a company or institution. At the interface of financial transactions, perpetrators tend to be most successful in defrauding funds,” says Marais.
General fraud is the highest reported fraud type at 29 percent, while misappropriation and theft come second. The countries with the highest number of reported cases of fraud are South Africa and Nigeria, but in both countries fewer cases were reported in the second half of the year than in the first. Zimbabwe has the highest value of fraud perpetrated in the second half of 2011, amounting to over US$1.2 billion.
KPMG compiled data for the Africa Fraud Barometer by accessing and analysing all available news articles, as well as reviewing fraud cases from designated databases. This methodology has been successfully used in the United Kingdom. The data is captured, processed and will be disseminated in a press release every six months. “Over time, we expect to get a clearer picture about the different types of fraud committed, which will allow us to propose to our clients various types of measures against fraud,” says Marais.
“From working on fraud over the last 20 years, I know that we are experiencing high levels of fraud in Africa. In some areas, we are dealing with a breakdown in the ethical environment. Morality and ethics in business operations have been eroded. On the positive side, I have learnt that recently, there has been a greater willingness by governments in Africa to address fraud. That is particularly the case in South Africa. A free press is very important to uncover fraud, so is willingness by the media to continuously dig up and report cases. We have more transparency than in the past.
“To outsiders, I say that Africa is a great place to invest, if you have the ability to assess the risk involved. That is the contribution the Africa Fraud Barometer seeks to make.”
To view the detailed results, go to kpmg.co.za or kpmgafrica.com