South African Businesses Losing $Billions to Fraud: A Worsening Trend

According to the latest African Fraud Barometer, financial fraud in South African businesses is on the rise, costing the economy an estimated $5.5 billion<http://www.businessfinance.co.za/news/south-african-businesses-lose-over-5-billion-to-fraud-in-second-half-of-2012/> in the second half of 2012. This figure is likely to have quadrupled by 2016, raising serious concerns for the South African business community.

Alarming Statistics from PwC’s Report

PwC’s Global Economic Crime Survey 2014 revealed that South African businesses experienced more fraud and bribery incidents than their global counterparts. Shockingly, 77% of all internal fraud cases<http://www.businesslive.co.za/bd/companies/2014-03-17-sa-businesses-lose-billions-to-internal-fraud/> were committed by senior and middle management.

Common Types of Business Fraud in South Africa (Source)

1. Embezzlement: Funds placed in trust or belonging to an employer are misappropriated. Employees may use their employer’s funds for personal expenses during financial hardships.
2. Employee Theft: Unauthorized use or misappropriation of an employer’s assets without permission. Can include inventory shrinkage and cash.
3. Payoffs & Kickbacks: Employees accepting cash or other benefits in exchange for access to company information or business opportunities.
4. Skimming: Money is taken from company receipts without recording the revenue on the books.
5. Double Check Fraud: Bookkeepers write two checks for the same invoice, stealing from their employers in the process.
6. Cybercrime: Includes various forms of online fraud like phishing attacks, EFT payment fraud, identity theft, bank account fraud, ransomware, CEO fraud, and hacking attacks.

Note that not all fraud is internal – external fraud (e.g., hacking) can also occur.

Expert Views on the Issue

Private investigator Rick Crouch shares his insights on the growing prevalence of business fraud in South Africa:

“Business fraud is a global issue, and we’ve seen an increase in cases coming into our office, from both our South African and Los Angeles offices. The most common types of fraud we encounter are cybercrime, embezzlement, and employee theft.”

• Rick Crouch

Recommendations for Fraud Prevention

1. Pre-employment Screening: Thoroughly examine prospective employees’ backgrounds to uncover potential red flags, such as criminal records or false qualifications.
2. Employee Education: Train employees about fraud awareness and the severe consequences. Implement an open-door policy for whistleblowers to report suspected fraudulent activities.
3. Internal Controls: Segregate duties to minimize risks and implement checks and balances.
4. Monitoring: Observe unusually loyal employees who never take vacation time, as they might be hiding something.
5. Expert Intervention: Consult with fraud investigation experts if any suspicious activity is discovered. Engaging an external team can bring peace of mind and help your organization implement stronger fraud prevention measures.