International Fraud Awareness week took place from the 13th to 19th November 2016. As one of the largest professional services firms in the world, Deloitte joined the global effort against fraud by providing its expertise across throughout the African continent.
Gregory Rammego, Forensic leader within Risk Advisory Africa at Deloitte says, “Fraud and corruption is a serious problem in South Africa and abroad, it’s important that organisations do everything to mitigate the risk of Fraud and Corrupt activities.”
When fraud and corruption occurs in an organisation, it can cause irreparable damage to the company’s reputation. Organisations must adhere to several local and international laws and regulations aimed at fighting fraud and corruption. Failure to comply can expose organisations to significant penalties, reputational damage, reduced competitiveness, negative customer experiences and even the loss of operating licences.
In South Africa, relevant legislation includes the Prevention and Combatting of Corrupt Activities Act, Financial Intelligence Centre Act, and the Companies Act. South African companies operating globally must adhere to relevant legislation for all their markets, such as UK Bribery Act and the Foreign Corrupt Practices Act.
Organisations must meet the minimum requirements of all these legislative framework and prove that they have taken sufficient steps to mitigate the risk of fraud and corruption. For example, under the UK Bribery Act, a bribery committed by an employee of a company incorporated under UK laws and operating in South Africa may lead to that company being held liable for a penalty if it can’t provide evidence that it had adequate procedures designed to prevent bribery by people associated with the company.
The Companies Act, which makes provision to hold directors personally liable for certain contraventions of the Act. It makes the prosecutions of directors involved in fraud and corruption easier than in the case of the previous Companies Act. The current Act does not give protection to directors and other individuals who make themselves guilty of fraud and corruption. The principle of the “corporate veil” has been watered down substantially in the new Companies Act.
“Procurement fraud is one of the most significant risks facing companies and government organisations today. When combined with weak governance, there is potential for abuse of power. For example, when the decision making power on a multimillion rand procurement deal is left in the hands of one person, there is a significant risk of potential fraud and corruption,” says Rammego.
However, he is encouraged by recent developments announced by the Gauteng Provincial Government and other government entities of implementing an open tendering process. This will promote transparency, and discourage abuse of power.
These procurement-specific measures, however, do not eliminate the risk completely. It is essential that companies seek professional help when mitigating these risks.
According to Rammego there are three key actions companies should take to overcome fraud and corruption.
Firstly, companies must realise that they need to tackle this issue broadly. They should look for expert help from professional fraud and corruption specialists, such as Deloitte, who can implement a comprehensive fraud prevention strategy that encompass business strategy, governance, systems and the human elements such as ethics and integrity.
Secondly, as the modus operandi of perpetuating fraud and corruption has become more complex and reliant on the use of data, companies should deploy technology based solutions to continuously detect and prevent fraud and corruption. The use of forensic data analytics, as an example, can assist in identifying fraudulent transactions that go unnoticed because of the volume of transactions, speed of processing, materiality of amounts, and general weaknesses in IT controls. The deployment of Cyber risk management and response plans can also help companies with fighting the scourge of fraud and corruption perpetrated through Cyber Crime. Deloitte Forensic is at the forefront of providing these solutions.
Finally, Fraud Week presents leaders across all industries with the perfect opportunity to emphasise the importance of fraud prevention within their organisations. Companies need to actively encourage employees to speak out when they suspect illegal activity and to provide platforms where employees can report these incidence anonymously without fear.
