Fraud in South Africa – the crime without the time
A quick look at the latest statistics released by the South African Police Services (SAPS) underpins an unpleasant truth: South Africa is wracked by violent crime. We don’t require an up-to-date account of events to know that the level of violent crime is
A recent survey by the Association of Certified Fraud Examiners (ACFE) suggests that as much as 7% of corporate revenue is lost to fraud worldwide. The report says although three quarter of South African businesses have fallen victim to some form or commercial crime, only 20% of these incidents are reported to the police. To make matters worse, managers are involved at some level in nearly 55% of all commercial fraud cases. The situation is unlikely to improve without a major shift in thinking among all stakeholders in the business sector.
Softly, softly – the wrong approach to commercial crime
How do we explain the growing fraud phenomenon? According to Philip Hobson, Financial Lines Manager at AIG SA, “the criminal justice system is still evolving, lenient penalties are not acting as an appropriate deterrent and criminals are getting more sophisticated.” Throw the terrible economic outlook into the mix and you have perfect conditions for financial impropriety. There is also a growing perception that perpetrators of so-called ‘white collar’ crime won’t be caught, or if caught, that they will be dealt with leniently by the courts. Little wonder then that a Global Economic Survey, conducted by PriceWaterhouseCoopers in 2007, concludes that South Africa is way ahead of global averages in the commercial crime stakes.
Another problem is the “it will not happen to me” mindset among South African business owners. “Executives are often unwilling to accept that fraud [can and] will happen in their company,” says Hobson. He says poor standards of internal control and the level of managerial involvement in financial misdemeanours is of major concern. It’s important to put checks and balances in place to monitor management staff, particularly where a position has been occupied for less than a year.
AIG SA offers the following tips for companies to help limit their fraud exposure:
- Directors and officers remain ultimately responsible for the well-being of the company and should place a strong emphasis on fraud prevention;
- Internal control systems and internal audit are identified as the two major tools to prevent and to fight fraud ;
- Companies should implement a fraud prevention policy, aimed at managing and reducing the risk of fraud, as well as a fraud response plan; and
- A confidential reporting process should be in place to encourage employees to come forward with information on potential or possible fraud.
Even with these systems in place the executive needs to recognise the ingenuity of the perpetrators of commercial crime. It’s only a matter of time before a dishonest employee identifies and exploits the weaknesses in a company’s systems.
On morality and ethics
One of the reasons for the high prevalence of commercial crimes is an apparent lack of morality across the fabric of South African society. The ethics and morality debate has been in the public domain for quite some time now. Although we don’t want to continue the debate in today’s column it’s necessary to provide a basic definition of each word before continuing. Ethics refer to a set of principles of right conduct – a theory or system of moral values usually established in a particular culture. Morals, in turn, are founded on the fundamental principles of right conduct rather than legalities, enactment or custom. Whether we talk to ethics or morality the concept is grounded in our life experience. And that might be where the problem lies.
A recent survey conducted by market research company TNS Research Surveys set out to assess South Africa’s moral fibre. Tangled Webs and Other Grey Areas: South Africans’ Shifting Attitudes to Crime, Ethics and Morality determined that more than half of the country’s middle class citizens took no issue with purchasing knock-off clothing. Approximately 40% of major city dwellers included in the survey said they would ‘take’ R20 if they found it lying around the office, lie to avoid trouble, offer a ‘gift’ to influence an official’s decision or pretend to be stuck in traffic when they were simply late for a meeting. Clearly we struggle with the ‘right versus wrong’ debate across a number of issues. The survey found that we have a definite leaning to so-called victimless crimes. In other words – we’ll do something perceived as wrong as long as we’re not directly hurting anyone.
Part of the problem is rooted in poverty. “It’s probable that the poor’s day-to-day priorities for survival are often able to outweigh more abstract moral considerations,” said the study’s author, Kathryn Robinson, who reported her findings on a morality barometer. Respondents were ranked as Goody Two Shoes (best), Seriously Dodgy (worst) or somewhere in between, based on their responses to a set of 18 questions. Are the moral standards of the average South African different to those in the rest of the world? We can answer that question with another. “Should we care?” It’s not acceptable to respond to criticisms of certain aspects of society with the “what about Americans, they do it too” defence! But until we change our way of thinking we’ll continue to lambaste the poor for stealing a loaf of bread while we help ourselves to a ream of paper from the office stationery cupboard. As Robinson correctly observes, “the word ‘steal’ is more overtly immoral than the concept ‘take home.’”
Editor’s thoughts:
Committing a series of actions to defraud a company of money is clearly wrong. But the lines blur when the act of theft is veiled by a sense of entitlement. Smaller frauds (including petty theft) often stem from an employees’ sense that their remuneration is inadequate for the contribution they make to the company. Do you feel your company ‘owes’ you more than your salary for the time and effort you put in behind the desk? Add your comments below, or send them to gareth@fanews.co.za
