The fraud threat is within

July 2017 Security Services & Risk Management

South African businesses are buckling under the cost of crime during tough economic times, but the perpetrators are often where companies least expect to find them.

Reg Horne.
Reg Horne.

“The threat comes from within,” warns Reg Horne, managing director of Justicia Investigations. He notes that businesses often spend large amounts on security to combat external threats without putting in place systems to counter internal ones.

“Yes, you need visible security. But it will not matter if you have three or 20 security guards. If you do not know where the problem is, the threat remains.”

“Currently, on-the-ground investigators have noted two interesting trends. The problem is not large corporate frauds, but the ever growing number of smaller crimes that are constantly adding up. And these are usually perpetrated by employees further down the line and not by top management as might be expected.”

Justicia’s experiences at the coalface echo the findings of two important studies. The first is the 2016 PricewaterhouseCoopers (PwC) Global Economic Crime Survey which not only showed that commercial crime was on the rise, but had reached crisis proportions in this region. More than two out of three (69%) South African companies reported having been victims of crime during the 24 months preceding the survey. At double the global average of 36%, this positioned South Africa as the top country reporting economic crime.

The second, the 2016 ACFE Global Fraud Study, not only indicated increased fraud but highlighted that the majority of cases involved employees. Embezzlement, theft by an accountant, bookkeeper or manager who diverts income and then covers it up, was flagged as a particular threat.

Horne says that recent Justicia cases, which have included the disappearance of large amounts of fertiliser between storage facilities at an agricultural processing company, the presentation of signed delivery notes for oil that had never arrived at its destination but had been sold off to a syndicate en route, the diversion of supplier payments to the banking account of an accountant’s relative and the ‘sale’ of fabrics from a clothing company warehouse were just the tip of the iceberg.

“Unfortunately, cases like this are happening daily. Businesses need to fight back to survive. Right now, they’re under siege from their own staff as well as from opportunists who know how to exploit employees when times are difficult,” he observes.

Horne adds that, even when the various schemes are engineered by crime syndicates, they are more often than not carried out by middle management and employees in positions of trust, such as those receiving or despatching goods, supervising logistics facilities, doing the accounts and controlling security.

This, too, was echoed by the PwC survey which noted that the number of crooked senior management had more than halved whilst middle management appeared to have taken centre stage with 39% of fraud being perpetrated by internal actors at this level. It also noted that more than half of internal perpetrators (52%) had been employed for between three and 10 years and were not only likely to be familiar with any controls, but may even have helped put them in place.

Many fraudulent schemes are often only detected by accident when losses have accumulated over longer periods. This is particularly true during tough times as companies tend to keep a closer eye on cash flow and look inward to better manage processes in order to cut costs.

The only way to catch those who know the ropes extremely well is through intelligence driven prevention. The only way to prosecute them effectively is to bring in experts.

“In a lot of instances, the organisation has the case in hand but doesn’t know how to take it to the next level. It requires skill to get the correct evidence that not only enables a company to dismiss an employee, but also to present the correct, admissible evidence to secure a conviction in court,” he says.

“Our operations team has the experience and skill required to understand each unique situation and assess which tools would be best suited to solving the problem. Our investigators are well versed in the Criminal Procedures Act and work with the SAPS or independently in gathering admissible evidence, compiling a docket and leading evidence in court.”

For more information, contact Justicia Investigations, 0860 00 5111,


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