Among the many negative accolades that our country has been able to garner in recent times is that South Africa ranks very close to the top for economic crime. Aside from the much-publicised corruption within both government and the private sector, fraud is a major concern. In fact, small- and medium-enterprises (SMEs) in the country likely tend to suffer the greatest amount of fraud in Sub-Saharan Africa.
Of equal concern is that the size of the fraud perpetrated in the SME sector is extensive. Businesses with an employee count of under 100 are often hit by major frauds, and many of these businesses end up having to close shop because of the significant harm done.
“While the environment is particularly problematic for businesses in South Africa because of our high crime rate, business owners and managers should take the steps necessary to limit the opportunities for these fraudulent activities from taking place,” says Zaakir Mohamed, Director, Head of Corporate Investigations and Forensics at corporate law firm, CMS South Africa. “Many businesses have weak controls, allowing for criminals to take advantage and commit fraud very easily”.
Mohamed encourages all businesses to focus on the issues that may allow for a greater risk of fraud taking place. “The starting point is to analyse your business with a view to understanding what elements of the business are most likely to be vulnerable to fraudulent activity,” he explains. “This does not necessarily have to be an expensive process. Apply some logic and discuss with your closest team members where the most obvious weaknesses lie. If need be, obtain expert advice and assistance”.
In doing this risk assessment, the business should take a close look at all areas that may be open to vulnerabilities. In this respect, the business needs to assess its entire value chain, including its procurement systems and processes, from a risk perspective to identify where there could be particular deficiencies.
According to Mohamed, “The most practical and cost-effective approach is then to determine where the highest risk areas are. Focus on these first and implement meaningful measures to mitigate the chance of wrongdoing occurring in any of the areas of greatest risk.”
In practical terms, mitigating the risk of fraud involves, amongst others:
- Carrying out due diligence assessments on your suppliers, service providers and customers. This may involve simple things like doing some internet research to check on the existence of the firm or ensuring that you hold some meetings at the supplier, service provider and/or customer’s premises so that you can confirm that they have an established, real base from which they conduct their business.
- Carrying out background checks on prospective employees and make sure you contact referees and past employers listed on their CVs.
- Revisiting the checks and balances you have in place. Also relook at the process for payments made by the business - ideally, you should segregate each step in the payment process so that there is always another staff member involved who could pick up an anomaly in the process.
- Cybercrime is an obvious concern, and this means that a business must be sure that there is stringent security in place and that employees are trained on the risks associated with digital processes and internet usage.
Ultimately, it is up to a business to protect itself in whatever way it can. Leaving this for another time is not a good idea!
The December/January holiday period
When many staff will be on holiday for the year-end break, your business may be more vulnerable than ever to the risk of fraud. Make sure now that you have a suitable process in place to cover you during this period, especially if the staff who are usually responsible for the checks and balances are away on holiday.
Be very cautious about processing urgent payments at this time. Fraudsters may push staff - especially those filling in for the usual staff responsible for processing payments - to make payments without delay. Thorough checking of payment requests is more crucial than at any other time.
Check now that your plans for how to handle the uncovering of any suspected fraud will work during the holiday period. Staff need to be clear about whom to contact, and what to do (and what not to do), should they suspect that fraudulent activity has taken place. Applying the correct process can be crucial in preserving evidence and building a case against the suspect.