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Taking a stand against fraud is a growing crusade

29 October 2014 Jonathan Faurie

In order for an industry to improve itself, it needs to look at the past and identify certain challenges which are affecting the industry. Apart from regulatory compliance, fraud seems to be having a significant impact on the industry.

The extent of this issue on the short-term industry has been highlighted in the past, and Censeo has pointed out that there is also significant fraud in the life industry where there are a number of cases of fraudulent death certificates being presented to companies in order to claim for death benefits. The company adds that this is also being run and funded by well organised syndicates.

Costing the industry

Fraud is the hardest to resolve in the motor sector as it is the biggest claims contributor in the short-term industry. Robert Driman, Director at Norton Rose Fulbright, says that fraud is costing the industry billions a year.

“Commercial crime costs South Africa billions annually, and cases of commercial crime have increased steadily over the past decade. Fraud and corruption continue to be of considerable concern to business leaders. More cybercrimes are being reported every year, and the perpetrators get into networks even from a vast distance. Similar trends are evident across the world, although there is a perception that corruption is more evident in South Africa than with many of our trading partners,” says Driman.

He adds that being caught up by dirty business costs everyone money in the long run. A number of professional services firms have helped businesses to upskill their staff members rapidly by devising and delivering in-house training programmes to meet the risks and to educate employees to do the right thing, by providing compliance systems and by doing pro-active audits. “Companies need to know that compliant business practices and avoiding commercial crime ultimately adds to their profitability, to staff morale and - most importantly - to the sustainability of a business,” says Dirman.

Starting to take a stand

While commercial crimes such as fraud and corruption are unfortunately associated with South Africa, the public is starting to become aware of the problem and is starting to take a stand against such actions.

Fraud is being uncovered more regularly as companies, employees and even the public sector become more aware of commercial crime. With this comes increased demand for highly specialised forensic investigation skills.

Forensic investigation company Santhos Manilall Forensics, Chief Executive, Advocate Santhos Manilall, points out that companies are working hard to become more complaint and putting better corporate governance in place. “At the same time, employees were becoming more intolerant of dishonesty in the workplace and using whistle blowing lines to anonymously report it,” he says.

He points out that the most disturbing trend of all at present is the increased reporting of procurement fraud that extends from collusion between officials and suppliers to cover quoting. This has especially been a problem in the short-term industry where companies have been held at ransom by motor part manufacturers. This has been brought to the attention of the Competition Commission which has duly launched an investigation into price fixing in the industry.

“Inevitably huge budgets are spent on procurement fraud and people are being unjustly enriched. I have investigated cases where people are double invoicing. They are not doing the work properly and then they are charging double for that work. With the monies they are getting, they can afford to pay kickbacks to officials. This is really alarming,” says Manilall.

Breaking the syndicated problem

For the most part, commercial crimes are being committed by syndicates. “At present, more complex things are being discovered, and more syndicated crimes being uncovered. We are also seeing more racketeering cases being reported and prosecuted. These are the types of cases where there is organised crime and where you require specialist forensic investigators to put everything together,” explains Manilall.

There are a number of initiatives from the SAICB’s side in order to stop the level of fraud that is occurring in the industry. The SAICB is working in collaboration with the South African Police Services (SAPS) and various other countries within the Southern African Development Community (SADC) region in order to break the back of these syndicates.

“Management needs to set the tone. The labour pool and the business environment are key. The steps start with appropriate screening of applicants when positions are filled to make sure that employees are both aware of the risks and do not have an undesirable past. Every employee needs to be aware that they form a critical part of the compliance chain. Training, monitoring and feedback are all necessary steps,” concludes Driman.

Editor’s Thoughts:
There was a debate earlier this year as to whether brokers were willing to participate in fraud investigations if it meant losing a client. While the company that flagged this as an issue believes there is a low level of participation, a FAnews poll showed that brokers are more than willing to participate. What will the brokers’ future role in fraud detection be? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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