Economic crime and fraud show no sign of slowing amongst Malaysian organisations; stronger ‘speak up’ culture needed

KUALA LUMPUR, 3 March 2020 – Malaysian organisations continue to experience high levels of fraud (43% of respondents, vs 41% in 2018), according to the Malaysian cut of PwC’s Global Economic Crime and Fraud Survey 2020. This is in contrast to South East Asia as a whole which has reported a decrease in fraud levels (39% experienced fraud, vs 47% in 2018).

This year, customer fraud was listed as the economic crime with the most disruptive impact on organisations (20%), followed by bribery and corruption (18%), cybercrime (16%) and asset misappropriation (16%). The four account for 70% of all economic crimes in Malaysia, which is telling.

Strong corporate controls and change in organisational culture needed to address fraud

Sridharan (Sri) Nair, Managing Partner, PwC Malaysia said:

“Fraud and corruption are some of the biggest threats to trust in business. It’s encouraging to see more companies begin to tighten up their corporate controls. More incidences of fraud are being detected through mechanisms like routine internal audit, which may be a result of better allocation of resources to internal audit functions in Malaysia. 

Companies’ efforts are also being recognised by the public. Malaysia improved 10 places in Transparency International’s Corruption Perceptions Index 2019, which measures perception of public sector corruption. This can be attributed to initiatives taken by the government to weed out corruption including the National Anti-Corruption Plan (NACP) 2019 - 2023, as well as the amendment of the Malaysian Anti-Corruption Commission (MACC) Act 2009 to introduce corporate liability for bribery and corruption.” 

Strong organisational culture, driven by the right behaviours from the top, is critical in fighting fraud and economic crime. The number of crimes uncovered through whistleblowing hotlines and tip-offs have decreased significantly from 42% in 2018 to 14% today. This is worrying considering that speaking up and reporting unethical behaviours is one of the most effective ways to root out economic crime.

Sri continued:

“Leaders, you are in a position to set the tone for a strong speak up culture by demonstrating the behaviours you want to see. When complaints are made, act quickly to establish a line of communication with the whistleblower, and decide how the investigation should be handled. Building trust with employees is key as they need to feel safe about reporting fraud and corruption.” 

Greater awareness of corruption, but more effort needed to comply with the MACC Act’s Corporate Liability Provision

Bribery and corruption remain one of the most prevalent economic crimes that organisations experience. While corruption appears to have levelled off at 35% (consistent with the 2018 finding), more organisations say that they have been asked to pay a bribe (from 11% in 2018 to 25% in 2020), which may indicate a greater awareness of corruption among Malaysian organisations. 

Alex Tan, Partner and Forensic Services & Risk Consulting Leader, PwC Consulting Associates (M) Sdn Bhd said:

“Our survey shows that just under half of Malaysian organisations have a dedicated programme to address bribery and corruption (49%), and 26% don’t know if resources will be increased to tackle fraud in the next two years. We expected to see more organisations investing in such initiatives in the coming months, especially with section 17A of the MACC Act 2009¹ taking effect come 1 June 2020. As Board members and management will be personally held liable if the organisation is found to be involved in corruption, this legal development will almost certainly serve as an impetus for change.” 

Harnessing technology effectively as part of anti-fraud programmes

Cybercrime continues to rise, with reported incidences increasing from 22% in 2018 to 37% in 2020. With technology becoming a platform for economic crime, only 45% of Malaysian companies have implemented a dedicated programme to address cybercrime, and 59% either do not know about or have no plans of using Artificial Intelligence (AI) to combat/monitor economic crimes. 

Alex comments:

“Technology has become the weapon of choice for fraudsters and economic criminals. It’s only logical that organisations themselves take advantage of technology to remain one step ahead. But technology is only part of the equation. Malaysian companies need to consider what they would like to achieve with their investment and upskill their people with the expertise they need to manage the technology. 

While fraud – and the intention to commit fraud – will always exist, organisations can’t afford to only react when an incident occurs. I encourage organisations to be proactive, carry out regular risk assessments to continually test and refine your defences, and invest in upskilling your organisation on what Adequate Procedures mean in practice so that you can prepare yourselves for the corporate liability provision. Build a strong corporate culture that advocates zero tolerance for corruption and other unethical behaviour.”

^{(1) As part of the section 17A legal provision of the MACC Act 2009, organisations need to demonstrate that they have carried out their due diligence to prevent acts of corruption related to their organisations. This due diligence is known as Adequate Procedures, and is the only defence to the liability offence.} 

ENDS