PREVENTING FRAUD
by Van Zyl Botha, Director, FinFive
June 2009
The current economic downturn means that companies are already struggling with slower growth, lower sales and often deteriorating cash flow; the last thing they need is an increase in fraud. But that is exactly what is likely to happen, especially if retrenchments are not handled properly.
If you think white-collar crime will not happen to you, or it is not that common, you are wrong. In 2005, the national bargaining council announced that companies doing business in South Africa are twice as likely to be defrauded as their counterparts in the rest of the world; that 83% of South African companies reported some form of white collar crime.
Since then, according to the official crime stats released in June last year by the South African police force, the number of reported cases of commercial crime rose 21% to 65 286. It is not just a case of companies discovering more fraud because of a closer focus on costs during a downturn; employees might also be tempted if a spouse is retrenched or retirement money is lost. It is the issue of controls that becomes important.
We are seeing people in an organisation who have spotted a weakness in controls and before they report it, they are taking advantage of those control weaknesses. Often it's the trusted employee who is responsible for committing this fraud. In order to prevent this from happening, companies should think about more than just the payroll line when embarking on retrenchments.
It is all about the safekeeping of assets; fraud does not just mean employees stealing money, it's about advantaging one party over another to the detriment of the company. Fraud therefore is not always a criminal act. Companies need to look at what structures have been put in place to prevent fraud and ensure that the planned retrenchments do not create gaps.
For smaller companies that might not be able to afford thorough forensic audits, the following simple steps are recommended:
• Make sure there is always more than one person in control of an asset or a process where a transaction/flow of cash occurs.
• Watch for irregularities, especially on the cost line – if volumes drop but costs stay the same you might have a problem somewhere.
• Before starting the retrenchment process properly evaluate what everyone does to avoid removing staff in key oversight roles.
• Keep your ear to the ground. Often it is another employee who informs on a suspected fraudster.
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