BusinessDay - Weak controls in recession ‘aid staff fraud’

BusinessDay - Weak controls in recession ‘aid staff fraud’

"EMPLOYEES committed undetected economic crimes, such as procurement fraud, during recessions because companies inadvertently weakened their internal controls, warned a forensic specialist last week.

White-collar crime, including fraud is estimated to cost the South African economy billions of rands annually. According to a recent study carried out among KPMG’s top 100 clients in Africa , about 30% of businesses said employee fraud had the highest effect on their business.

According to recent South African Police Service crime statistics, 84842 cases of commercial crime were reported from April 2009 to March last year, a 51,8% rise since 2003 .

US companies are also losing about 7% of their annual revenue to procurement fraud each year, according to international studies conducted recently.

Dave Loxton, a forensics specialist and director at Werksmans Attorneys, said procurement fraud was one of the most costly types of economic crime and tended to go unnoticed.

Procurement fraud affected businesses across a broad range of industries. It usually involved price-fixing, mischarges of goods and bid-rigging.

Mr Loxton said the global economic recession had placed increasing pressure on employees and directors to commit fraud.

It tended to be easier to commit an undetected economic crime, such as procurement fraud, during a recession because companies, in an effort to cut costs, often weakened their own internal controls through injudiciously targeted retrenchment.

He said this was ill-advised as it removed the segregation of duties, which was a crucial element of good internal control.

Among the many varieties of white-collar fraud prevalent in SA , the three most common were theft, financial statement fraud, and bribery and corruption."