These were the strong views of the Association of Certified Fraud Examiners (ACFE) South Africa, whose comprehensive report showed that whistle-blower tips were the most common method of detection of fraud and corruption cases in sub-Saharan Africa – standing at 37.3%.
According to the ACFE, this figure was more than double the second most common detection method – internal audits, standing at 16.2% – where management reviews were in third place, accounting for just 10.2% of detection methods.
This ACFE report – titled Report to the Nations on Occupational Fraud and Abuse: 2016 sub-Saharan Africa Edition – collated its information from 288 different organisations in sub-Saharan Africa, 87 of which were in South Africa.
The report also shows that the financial services sector was the most hit by fraud and corruption, followed by the government sector and the small business sector was third.
ACFE SA chief executive Jaco De Jager told The Star organisations which rely on management reviews and internal audits instead of internal hotlines to detect fraud were at risk of not adequately dealing with illicit activities.
“It makes sense to have a hotline for an organisation. Organisations which don’t make use of hotlines to report fraud are at risk because they lose out on almost 50% of tip-offs,” he said.
“Managements do their reviews once a year, which is usually around the same time just before the financial year end. The problem is that people know when to change figures and other things, whereas tip-offs are spontaneous. Hence they are the number one deterrent. If I sit next to you and we earn the same salary and you are driving a BMW and I can barely afford a Citi Golf, then questions are raised immediately.”
The report also showed the “fraudsters level of authority within an organisation” was strongly correlated with the size of the fraud.
Only 13.5% of occupational frauds in sub-Saharan Africa were committed by owners/executives, but these cases resulted in a median loss of $400 000 (roughly R5.36 million) yearly, which was significantly higher than the losses caused by employees or managers.
According to the report, employees committed 43.8% of fraud, accounting for a median loss of $100 000; and managers committed 40.8% of fraud, which resulted in a median loss of $147 000.
Explaining this phenomenon, De Jager said: “Awareness is more on junior level staff than on senior level staff.
They (senior staff) are more blatant in committing the crimes.
“It’s the signing power, that’s what it’s all about. The executives sign the cheques, while junior staff need authorisation from the executives to get cheques signed.”
Identity fraud also seems to be a big issue, according Marius Coetzee, the chief executive of Ideco Biometric Security Solutions.
Coetzee, whose company sells biometric products, services and solutions said it was believed every company loses approximately 5% of it’s turnover to identity fraud every year.
He detailed cases where one medical aid card can be used over 200 times by different people in one year to visit a doctor, where fraudsters use false identity to defraud the government by fraudulently claiming social grants and where illegal miners unlawfully gain entrance to a mining company to mine there illegally.
“For example, the medical industry is talking about R15billion per annum lost through transactions that are fraudulently happening because of the lack of understanding of the identity in that particular space... it is immense."
“Two years ago, there was a person in their books with the most number of visits to the doctor in a year, that person did 263 visits. The point they were making was that the membership card was being shared with other people out there and that is a cost to us because as members of that fund we carry the cost."
“The reason this is happening is because there is no certainty in that particular transaction whether the person presenting the card is the rightful member of the fund,” Coetzee said.
On the preferred recourse option for organisations which have been scammed, the ACFE report showed that 64.2% of respondents preferred referring cases to law enforcement agencies, while 22.1% preferred going the civil route.
De Jager strongly advocates for criminal proceedings to be instituted when fraud is detected, saying this acts as a deterrent to future fraudsters.
“We say don’t go the civil route, go the criminal route. Through the criminal route, you can actually, at no cost, ask the court to make a ruling that money gets paid back."
“So you don’t have to go for a civil case. Criminal routes make an emphatic case that, ‘we are not going to tolerate fraud,’” he said.