Blackheath, South Africa (PressExposure) May 15, 2009 -- The current economic downturn means that companies are already struggling with slower growth, lower sales and often deteriorating cashflow; the last thing they need is an increase in fraud.
But, according to financial consultancy FinFive that is exactly what is likely to happen, especially if retrenchments are not handled properly.
If you think white-collar crime won't happen to you, or it is not that common - you are wrong.
In 2005, the national bargaining council announced that c ompanies 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.
And, while perceptions of the level of corruption in business have decreased somewhat globally in the last few years, according to Transparency International's Global Corruption Barometer 2007, South Africans are some of the most pessimistic in the world, with 70% of those surveyed expecting corruption to increase in the next three years.
FinFive director, Van Zyl Botha, explains that 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.
In an adverse economic climate the motivations for fraud are not purely greed. "If your wife or husband has just lost their job and the bills keep piling up, you are more likely to try something desperate, especially if there are fewer controls in place to stop you."
Indeed it is the issue of controls that becomes important. Botha said: "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."
Some have even said: "Out of 10 employees, one will always commit fraud, one will never commit fraud and the other eight may commit fraud if circumstances allow or forces them and they cannot see any other alternative".
Prevention is better than cure In order to prevent this from happening, Botha suggests that companies think about more than just the payroll line when embarking on retrenchments.
"It's all about the safekeeping of assets; fraud doesn't just mean employees stealing money, it's about advantaging one party over another to the detriment of the company," he says. 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 don't create gaps.
For smaller companies that might not be able to afford thorough forensic audits, he suggests the following simple steps: â¢ Make sure there is always more than one person in control of an asset or a process where a transaction/flow of cash occurs. â¢ Watch for irregularities, especially on the cost line - if volumes drop but costs stay the same you might have a problem somewhere. â¢ Before starting the retrenchment process properly evaluate what everyone does to avoid removing staff in key oversight roles. â¢ Keep your ear to the ground. Often it is another employee who informs on a suspected fraudster.
Companies rarely want to admit they have been a victim of fraud because they are afraid it may reflect badly on them, but being found out by your clients or suppliers would be far worse. Fraud is a reality but, that doesn't mean becoming a victim is a foregone conclusion. Implementing the correct procedures should ensure that employees are not in a position to enable them to commit a fraud.