Employee-vendor relationships are a key financial crime risk: PwC 

More than a quarter of companies in Thailand and four in 10 listed companies said in PwC’s 2016 Economic Crime Survey that they had been victims of fraud. That is a staggering number, but is probably just the tip of the iceberg with many more organisations possibly affected but not having the systems in place to detect when their defences are breached.
The presence of 500 top executives from 300 companies at PwC Thailand’s first ever Forensics Summit was a clear sign that financial crime is now getting the focus that it deserves. The participants came to hear about the latest trend for fighting economic crime in the financial services and other sectors. 
The stakes are high. The 2016 PwC Thailand Economic Crime Survey shows that while the financial cost of economic crimes is less than US$100,000 in 69 per cent of certified cases, 9 per cent of cases involved losses of between $100,000 and $1 million, while in 10 per cent of cases more than $1 million was lost. 
Twelve per cent of respondents said they were unable to even estimate how large their losses were.
And the cost is not just financial. Reputations can be severely dented if financial crimes are made public, and employee morale may suffer. Business relations may also be put under strain and for public companies, there is a very real chance that share prices will be impacted. 
A company may also leave itself open to regulatory action if it can be shown, for instance, that employees, related companies or third party vendors paid bribes to government officials while senior executives turned a blind eye.
Third party vendors are a critical part of the supply chain for many companies but they can be a source of many types of financial crime, especially when vendors have undisclosed relationships with employees. 
Employees are the most common perpetrators of fraud, but they often use these third party vendors to carry out their schemes. For example, procurement fraud has been on the rise in recent years, with almost a quarter (23 per cent) of companies globally reporting being affected by it in 2016.
Procurement fraud often results from employees colluding with vendors, and this collusion often starts during the vendor selection process. It’s really important that companies extend their due diligence efforts to include not only their employees but also any potential or existing third party relationships. Hidden relationships between employees and vendors need to be identified and understood.
If companies get it right at the vendor selection process, with the help of appropriate background due diligence, it can go a long way to reducing the risk of fraud down the track in the tender, procurement and payment processes. But it’s never too late to start looking at relationships that are already in place.
Our survey findings show that strong governance, as well as risk and compliance technology reduces corruption and fraud risk. This technology should include automated compliance tracking and suspicious transaction monitoring. Internal audit processes should be integrated in high-risk areas that are flagged by risk management departments.
The key to fighting financial crime is more vigilant systems and extending due diligence beyond customers to include employees and third-party relationships. As the attendees at our summit are clearly well aware, the cost of neglecting this can be immeasurable.

VORAPONG SUTANONT, the author, is Partner, Forensic Services, PwC Thailand