Risk Management: White collar crime increasing
Although commercial crime is not highly publicised, white collar crimes and corruption are rife in private and public institutions and are undoubtedly on the increase, costing South Africans billions of rands. The solutions include workplace safeguards, risk management and commercial crime cover.
According to the National Crime Information Management Centre of the South African Police Services, white collar crime is described as "an umbrella concept used to refer to a whole host of activities such as fraud, embezzlement, tax evasion, bribery, insider trading, 'kick-backs' and corruption".
Endemic in SA
The 1995 Transparency International Corruption Index confirmed that "white collar crime" and corruption are endemic. Evaluating the perception of 'improper practices' in 41 countries, its findings were based on a scale of 1 to 10, where 10 denotes the total absence of corruption and 0 the entire penetration of business transactions by corruption, involving kickbacks, fraud and extortion. South Africa scored a disquieting 5,62, in contrast to New Zealand's 9,55.
The PricewaterhouseCoopers' economic crime survey published in October 2007, showed that 72% of South African companies surveyed were victims of economic crime, much higher than the 42% global average.
Widespread occurrence
Legitimate examples of companies in diverse market segments that have lost heavily include:
* Leather Hide Manufacturer: misappropriation of leather hides = R1 300 000
* Pharmacy: misappropriated funds due to shortbankings = R282 000
* Bank: misappropriated funds = US$500 000
* Fresh Produce Market: fraud involving debtors rolling, unpaid cheques and electronic fund transfers = R7 000 000
* Construction: misappropriated funds = R11 700 000
Clearly these figures could cripple most organisations and the diversity of industries illustrates the point that no industry or organisation is exempt.
Extensive risk
"From these and other stats, it's clear that protection against commercial crime should be mandatory, particularly considering the relative impunity with which these white collar crimes are being committed. It's a lot easier to conceal than other forms of crime and therefore it is much harder for the business to control and for the criminal justice system to deal with," says Donna van der Merwe, divisional head at Camargue Underwriting Managers.
"Is white collar crime a bad risk, or just a result of bad risk management? Underwriters are inclined to look at a market segment and automatically class it as a bad risk. But are we not overlooking risk management?" asks van der Merwe. "Do we promote ethical work environments? Will this not assist in reducing the possibility of fraud and corruption?"
Risk management
Areas which require extensive risk management, and certainly segregation of duties, include:
* Creditor payments
* EFT transfers
* Debtors (rolling of debtors book)
* Petty cash abuse
* Cash theft
* International transfers
* Payroll (ghost employees)
* Stock theft
In a recession, and with the increasingly organised and sophisticated nature of white collar criminals, companies are facing a greater risk. Fraud increases when general insecurity pervades the employment sector and difficult economic conditions exist.
Commercial crime cover
"Regularly check your weak areas to safeguard against this! Bear in mind that one can have the best risk management processes in place, but the ingenuity of the criminal mind might still prevail. And when risk management is not enough, counteract the losses associated with this crime through the purchase of broad commercial crime cover," concludes van der Merwe.
