White-collar crime an impending threat to SA Businesses

Costing South Africa an estimated R930m a year, commercial and white-collar crime is on the rise in South Africa - especially among senior to top management. Just recently, a business was forced to close its doors after its finance clerk stole over R1 million, thereby impacting its productivity and turnover, and ultimately the entrepreneur, as well as the staff’s livelihood.  

Gillian Wolman, Head of Litigation at Risk Benefit Solutions (RBS), an independent insurance and risk specialists, warns that as economic conditions tighten, more South Africans are struggling to meet their financial obligations thereby increasing temptations of such crimes. “Internal crime is one of the most serious threats to the stability of a company, and despite employers’ efforts to secure assets, the occurrence of these incidents is increasing.

“This type of crime does not necessarily occur instantaneously, but often it is a gradual process that, if done meticulously, may only be discovered at a later stage coinciding with irreversible financial damage.”

Wolman expects white collared crime to increase going forward. “Given the rise in claims for such incidents, we expect this figure to rise when the latest Crime Statistics are released later this year. While there are no statistics currently available for the impact of such crimes on the local economy, experts have estimated that white collar crime is estimated to cost South Africa around R930 million a year.”

Wolman says that white collar crime is more sophisticated than other crimes and the chances of a guilty employee getting caught, or imprisoned, is rare. “The lack of convictions has been attributed as one of the main reasons why commercial crime is on the rise.” According to the forensics unit at law firm ENSAfrica, it is not only South Africa that is struggling to convict big corporate players, and that the United States and the United Kingdom, among others, are struggling to prosecute white-collar criminals, despite having strong legislation in place.

The rise in white collar cases, coupled with low conviction rate, is placing the insurance industry under increasing pressure, and underwriters are feeling the brunt of it. Gail Carver of Commercial Crime Concepts, a specialist commercial crime insurer, confirms that convictions of fraudsters are extremely difficult to achieve, and they have to utilise the services of private contractors to assist the South African Police Service and Public Prosecutors should they want to have any chance of securing successful prosecutions. She goes on to say that the lack of a deterrent, which should be provided by an effective criminal justice system, is only one of the problems faced by companies, and other issues which should be considered are as follows:

• Gambling – many fraudsters are employees with gambling problems who need to steal in order to pay their monthly expenses;
• Poor Management – many losses could easily be avoided by implementing basic accounting or stock controls;
• Screening of employees – many companies employ people in positions of trust without checking their background, criminal record, credit record, or even the individual’s identity document. Many losses perpetrated by serial fraudsters could be avoided by doing some basic checks on prospective employees.

Wolman says that corporate crime is not limited to a specific industry and that it varies from sector to sector. “No industry is safe from commercial crime, therefore it is important for companies to ensure that they are enforcing the right checks and balances. This includes putting preventative measures in place to mitigate these crimes, such as ensuring that a number of signatories are required regarding movement of company capital. This is particularly important for companies that handle third-party funds. Companies should continually safeguard funds with daily screening processes to check that no extra funds are going out, and that the company books are balancing.”

She says that checks should also be in place for departments outside of finance, such as human resources (HR). “There have also been instances where HR has set up fraudulent accounts for fictitious employees on the companies’ payroll system. While this might not be as relevant for smaller companies, this can result in significant losses for large organisations.” Wolman also refers to stock handling fraud that is prevalent amongst delivery truck drivers.

“It is advisable for business owners to seek guidance from a risk specialist to gauge where the business may be prone to threats and how they can protect themselves. A specialist will be able to advise on measures that can be put in place and recommend suitable insurance, such as commercial crime cover which will ensure that companies are protected for a loss as a direct result of acts of fraud, theft or dishonesty by an employee.

“Sadly fraud and crime is one of the threats and challenges that business owners need to protect themselves from as one never really knows when they will be a victim.”