South African Companies Advised To Re-evaluate Their Anti-fraud Controls

Incidents of fraud are on the rise in South Africa, with statistics by the South African Fraud Prevention Service indicating that new fraud listings had increased by 56% in 2017. In light of International Anti-Corruption Day, which falls on Sunday 9 December 2018, all businesses should take some time to ensure that they have robust anti-fraud mechanisms and controls in place.

This is according to Keeran Madhav, Director of Forensics at Mazars, who points to a 2018 global study on occupational fraud and abuse, released by the Association of Certified Fraud Examiners (ACFE), which found that nearly half of all fraud incidents were made possible by weaknesses in the internal controls of the businesses being targeted.

Madhav says that one of the main reasons why a company’s anti-fraud controls may be weak, is because the controls are not proactive or robust enough. “Being proactive means that the company puts measures in place that detect fraud before any visible warning signs present themselves. This includes conducting surprise audits, and instituting a fraud hotline, conducting fraud risk assessments and proactive data monitoring, for example. The median loss of company’s who implemented anti-fraud controls were on average 12 to 56 percentage lower.

“In terms of robustness, a company’s fraud controls need to be able to evolve and adapt as the nature of fraud in the industry changes. To ensure that anti-fraud measures are indeed robust enough, it is vital to re-evaluate anti-fraud controls and programmes on a regular basis to see which aspects need to be updated,” he adds.

Madhav explains that some of the most important controls that need to be present in every organisation include a clear code of conduct, robust anti-fraud policies, and proactive data monitoring. “There also needs to be a clear message or tone from the top levels within the organisation regarding the company’s ethics and attitudes towards any type of occupational fraud and dishonest dealings.”

In addition to this, he notes that ACFE’s report has shown that of all the anti-fraud measures, fraud hotlines that allow employees to report irregularities anonymously, have shown some of the best results. “The report shows that 42% of all cases were first brought to light as a result of telephone hotlines. This is the highest of all the channels, including email and online platforms. Fraud losses were also 50% smaller for organisations with fraud hotlines than those without.”

Lastly, Madhav states that employee behaviour is also an important indicator of possible fraud, which is why business owners and senior managers need to be alert for possible red flags in employees. According to the report, corruption was the most common fraud scheme in every global region with 70% of the cases perpetrated by someone in a position of authority and with a usually close association with a vendor or customer.

He says that, especially with management level employees, it is important to go the extra mile to see whether they have any relationships with clients and other stakeholders beyond the scope of their work.

“For this, it helps and where permitted to keep an eye on the social media activities of employees that may pose a potential fraud risk within the business. It also warrants further investigation if you see that certain employees are living beyond their means, individuals saddled with bad debt, or employees who show signs of substance or gambling addictions.

“Mazars conducts both internal and external investigations concerning allegations of bribery and corruption within a company, as well as assists with the development, implementation and monitoring of anti-fraud controls within companies. Making one’s anti-fraud system more robust does not have to be an expensive process. Mazars has put together a useful checklist that can help to make the process of updating fraud controls significantly quicker. With a new year rapidly approaching, it is vital to re-evaluate and start working on updating anti-fraud controls sooner rather than later,” Madhav concludes.

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