Adv. Vusumuzi Vilakazi, Coega Development Corporation Forensic Auditor writes:
Every year, from 12-18 November, organisations worldwide observe Fraud Awareness Week. It is important that as a Forensic Auditor, I contribute to this important effort to raise awareness on the topic that affects so many organisations in terms of financial sustainability and brand reputation, impacting communities and economies.
In alignment with South Africa’s Public Finance Management Act (PFMA) (Act No.1 of 1999), related prescripts, and the organisation’s core values, the Coega Development Corporation (Coega) has implemented a stringent Fraud Prevention Policy that underscores the organisation’s commitment to a zero-tolerance approach to fraud, corruption, and dishonest activities, aligning with one of our core organisational values of integrity. With integrity at the core, Coega strives to maintain a proactive approach to fraud management, recognising fraud management and prevention as a critical aspect of corporate governance in accordance with the King IV Report on Corporate Governance.
The organisation employs a multifaceted strategy, encompassing measures including fraud awareness programmes, a Code of Conduct and Ethics, comprehensive policies and procedures, a Disciplinary Code and Procedures, robust internal controls, Internal/Forensic Audit, physical and information security, pre-employment screening, external audits, and lifestyle audits to mitigate the potential impacts of fraud.
According to a study conducted by the Association of Certified Fraud Examiners (ACFE), fraud inflicts a substantial financial impact on organisations worldwide, with an estimated five percent loss in annual revenues. The Occupational Fraud 2022: A Report to the Nations delving into 2,110 occupational fraud cases totalling over $3.6 billion (R65 billion), underscores the urgency for collective action against this pervasive issue.
Fraud is a pervasive, unlawful, and intentional misrepresentation causing prejudice and corruption, often involving gratification for dishonest or illegal acts. These acts may include unauthorised expenses, conducting personal business during work hours, false claims, non-declaration of conflicts of interest, and abuse of power, to name a few.
The measures implemented by the organisation to manage such instances of fraud are detailed in various policy documents, including the Fraud Prevention Policy, the Coega Lifestyle Audit Policy, and the Fraud Response Plan. Legislative and regulatory frameworks, such as the PFMA, Prevention and Combating of Corrupt Activities Act No. 12 of 2004, and Treasury Regulations, further guide the organisation’s commitment to ethical standards.
Further examples of fraudulent activities, some of which are taken for granted, include timekeeping abuses, asset theft, and bribery.
Bribery is the act of offering another person something valuable in exchange for obtaining something not otherwise attainable. For instance, a contractor might seek to influence a contract manager by offering a bribe to secure payment for substandard work or work that was never completed.
While the acceptance of the bribe is inherently criminal, the classification of this act as fraud necessitates an underlying scheme characterised by intent, deceit, and the prospect of either loss or gain. Should the contract manager manipulate reports in connection with the bribe, the situation escalates to fraud. The deliberate actions reveal intent, deceit, and result in the employer incurring a loss for services paid to the contractor.
The next example is theft. Theft involves the unauthorised appropriation of property and becomes an insidious act when manifested as an inventory scheme within an organisation. Consider a scenario where an organisation routinely acquires laptop computers for its staff without maintaining proper records of recipients. The purchasing official, aware of this lack of oversight, indiscriminately approves requests for equipment within budget constraints.
Exploiting this situation, the Information Technology (IT) Manager routinely requests new laptops, irrespective of actual need, resulting in surplus inventory. Subsequently, the IT Manager proceeds to sell these surplus laptops online, pocketing the proceeds. To conceal the theft, falsified entries are made in the logbook, indicating either reported theft by employees, irreparable damage, or legitimate assignment to staff members. This orchestrated manipulation of records constitutes a fraudulent act.
Time keeping abuses are one of the more prevalent forms of workplace misconduct and stands out as a particularly common transgression. Consider a scenario where an employee, designated to adhere to a 09h00 to 17h00 work schedule, consistently arrives at 10h00 am and departs at 16h00 without authorisation. This results in a systematic reduction or “skimming” of their daily work schedule by two hours, equating to 10 hours per week. In the context of a standard 40-hour work week, this represents a substantial 25% reduction in total weekly work hours.
To comprehend the significance of this practice, let us consider a hypothetical annual salary of R60,000. The calculated 25% reduction in time equates to a misappropriation of R15,000 worth of work hours annually, constituting a form of time theft. Elevating this transgression to the level of fraud is rooted in the employee’s conscious decision to knowingly diminish their reported work time, demonstrating intent. The deception lies in the false reporting of time worked, leading to a tangible loss in the perceived value of the employee’s time to the employer.
Fraudsters, often appearing to be law-abiding individuals, impact organisations beyond immediate financial losses, causing negative publicity, eroding citizen confidence, and diverting attention from core objectives.
As Fraud Awareness Week concludes, it is crucial for organisations to acknowledge the need to participate in preventative measures actively and collectively. Educating employees, implementing stringent controls, and fostering a culture of integrity are essential steps.
By uniting against fraud, we can protect our organisations, preserve public trust, and ensure that resources are utilised for their intended purpose.