“Every company must have a deliberate plan to prevent and detect fraud, and must never underestimate the potential of an attack from within.”
We couldn’t have found a better way to start off this article! Truth is, you never see it coming. Never think your employees will ever do that to you, especially since South Africa is a country with high crime rates. It’s good to trust your employees, however, do not be naive. As they say, our enemies are people around you, they know enough to hurt you, and in this case, your business.
According to the Global Economic Crime and Fraud Survey, 41% of economic crimes in South Africa were committed by employees, in comparison to the 36% of fraud committed by external sources and 21% was collusion between the two.
Understanding Fraud:
Let’s first unpack this, FRAUD is a common law offense – it is a wrongful or criminal deception intended to result in financial or personal gain.
To understand how to prevent your business from fraud, business leaders must first understand the types of fraud they’re most likely to encounter.
Types/Common Corporate Fraud(s)?
Payroll Fraud Schemes
Payroll fraud can appear in a variety of ways, particularly if a company manages its payroll function internally and is normally handled by a single person.
Types of payroll fraud:
- “Ghost” employees – when a “trusted” employee manipulates the payroll process, in order to get an additional paycheque for a non-existent employee.
- Falsified wages – when an employee or employees falsifies their wage rate or lies about their sales numbers for increased commission.
- Expense and reimbursement fraud – when an employee logs a false reimbursement request or gets an expense claim approved for activities that did not receive the proper attention and valuation initially.
Asset Misappropriation and Skimming Fraud Schemes
The term “asset misappropriation” refers to a broad range of employee-based fraud schemes that fall into two broad categories: cash and noncash.
Types of asset misappropriation:
- Cheque tampering – when an employee alters the amount, recipient, and other details on the cheque to transfer funds into their account instead of the original recipient.
- Inventory theft – when an employee redirects deliveries of products from vendors to an alternate address – with the intention of keeping or reselling on the company’s dime.
- Misuse of assets: When an employee utilizes company property, such as company vehicles, company computers, or company credit cards for unauthorized personal activities.
Financial Statement Fraud Schemes
Financial fraud occurs when a worker purposefully lies or omits crucial financial data—such as sales, revenues, assets, and liabilities—in order to deceive others.
Financial statement fraud red flags to look out for:
- Accounting anomalies – when an employee falsifies the company’s revenue numbers to indicate increased income generated by the sale of products or services.
- Falsified growth reports – when employees, managers, or executives, intentionally, misrepresent the company’s sales figures and financial growth in order for the company earnings to look healthier.
- Falsify the value of an asset: Then is when an employee, manager, or executive purposefully alters the value of an asset to make it appear more valuable than it actually is.
There is no distinction between corporate or business fraud. Under common law, a case of fraud must be supported by the evidence of the following factors:
- Misrepresentation.
- Unlawfulness.
- Actual or potential prejudice.
- Intention.
When should you take action?
An employer must act as soon as any severe allegations of wrongdoing are known or suspected to exist against a particular employee.
An organization’s capacity to gather important evidence may be impacted by how quickly it responds to any allegations of fraud. When an offense is committed, there is a wealth of evidence that is easily accessible to investigators.
Sure, you can never see it coming. Here are some red flags to look out for internally:
- living beyond their means
- unusually close association with vendor/customer
- financial difficulties
- wheeler-dealer attitude
- control, issues, unwillingness to share duties
- divorce/family problems
