Business fraud is the crime that is least talked about because it is not as headline grabbing as armed robberies, and more importantly many businesses do not report this type of crime because they are afraid of reputational damage should it become public knowledge…

Fraud cost the African continent $5.5 billion in the second half of 2012, with three-quarters of all fraud cases reported in Nigeria, Kenya, Zimbabwe and South Africa, according to the latest African Fraud Barometer. One can only imagine that it had quadrupled by 2016.

In its Global Economic Crime Survey 2016 auditing firm PwC revealed that in comparison to businesses globally, South African businesses experienced more fraud and bribery incidents than their counterparts globally.

The survey went on to say that South African organisations reported that senior and middle management commit 77% of all internal fraud

According to the firm, the profile of the typical fraudster is

  • Male aged between 31 and 40
  • Has worked for his employer for more than 10 years
  • Has acquired a university degree

There are six common types of financial frauds that can affect a company and if not caught prevented from happening, they can financially ruin a company.

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So often we hear of business owners who find out too late that a ‘long-time, trusted’ employee is suspected of stealing from the company. The majority of fraudsters are only identified after the employee has been appointed to the job, so possible fraud could be mitigated by means of a pre-employment screening investigation.

The six basic type of financial business fraud are:

  • Embezzlement – theft or misappropriation of funds placed in one’s trust or belonging to one’s employer. A bookkeeper or other employee may have come into hard times financially and has resorted to using his/her employers funds for personal expenses. More often than not, embezzlement cases will not find their way into the media or even into the courtroom, as the employer, to avoid embarrassment and reputational harm, will settle with the embezzler privately out of the spotlight.
  • Employee theft – is defined as any stealing, use or misuse of an employer’s assets without permission. The term employer’s assets are important because it implies that employee theft involves more than just cash. This type of theft is also sometimes referred to ‘inventory shrinkage’. This is also very common in the fuel industry.
  • Payoffs and kickbacks – this is where employees accept cash or other benefits in exchange for access to the company’s business.
  • Skimming – this occurs when employees take money from receipts and don’t record the revenue on the books.
  • Double checks – a bookkeeper would typically write two checks when paying an invoice. For example, the bookkeeper would pay ACME Office Supplies R700 and at the same time make another payment to herself/himself for R100 and code it in the accounting system to “ACME”.
  • Cyber crime – includes phishing attacks, EFT payment fraud, identity theft, bank account fraud, ransomware, CEO fraud, hack attack, denial of service attacks to name a few.

It is vital to an organisation, large or small, to have a fraud prevention plan in place

On average fraudulent activities can last an average of 18 months before being detected. Imagine the type of loss your company could suffer with an employee committing fraud for that length of time, unchecked.

There are steps you can take in order to reduce the risk of your company becoming a statistic:

  • Know your employees before you hire them. Conduct a thorough pre-employment screening check on them. These checks can weed out those with prior convictions for financial crimes, confirm references with prior employers also ensuring the company information given is not a friend on the other side of the line giving a glowing reference, check that qualifications claimed are indeed factual and much more.
  • Make employees aware. Everyone within the organisation should be aware of the fraud risk policy including types of fraud and the consequences associated with them.
  • Implement internal controls. Segregation of duties is an important component of internal control that can reduce the risk of fraud from occurring, checks and balances.
  • Monitor vacation time. You may be impressed by the loyal hard-working employees who haven’t missed a day of work in years, but it could be a sign that they have something to hide and are concerned that someone will detect their fraud if they are out of the office for a period of time. Many bookkeepers are caught only when they are forced to take a vacation and a temp was hired.
  • Hire experts. If you suspect that there is possible fraudulent activity going on in your company or the recent break-in just does not make sense, as no one can work out how they got in, call an expert, in this case, a private investigator. Even if nothing is found it will give you peace of mind.

“Business fraud is a big problem and we have seen an increase in this type of case coming into our office not only here but also our Los Angeles office so it is a global issue. Most clients come to us because they do not want it getting out and becoming public for obvious reasons,” said local private investigator Rick Crouch.

“We have seen it all; cyber-crime, embezzlement, employee theft, employees that team up with outsiders to break into offices and much, much more. Business owners must be more vigilant as to who they hire when we perform pre-employment screening checks for clients we have noticed an increase of applicants with serious criminal convictions and more and more false qualifications, some of the job applicants we investigate have as many as 20 criminal convictions. The slogan should be ‘CHECK BEFORE YOU HIRE’ it will save you future problems”.