2020 has shown that companies must fight corruption from within

Preventing fraud and corruption, and mitigating risk, should be an inside job, these experts told us.

Zaakir Mohamed (pictured above), director and head of corporate investigations and forensics at CMS South Africa says companies in the private sector must make sure their own operations aren’t complicit in enabling corruption. No representative of a business should be able to engage in any type of action that would give undue advantage to any individual or business in order to acquire new business or retain an existing contract.

In addition, any employee or executive must refuse offers of bribes or resist attempts at extortion. To ensure that this can be done, enterprises should develop a robust anti-bribery and corruption compliance programme, which will go a long way towards eradicating public and private sector corruption.

A company’s board and senior management have an important role to play in designing detection strategies. These should detect fraud from within, which will allow businesses to mitigate the severe financial and reputational consequences of being victim to commercial crime.

Red flags to look out for include:

  • Short-term changes to vendor accounts;
  • Transactions processed after hours;
  • Payments made that are just under authorisation levels;
  • Payments of round number amounts;
  • Invoices that reflect charges in round number amounts;
  • Duplicate payments;
  • Payments made to unknown vendors or suppliers;
  • Lack of supporting documents for payments made; and
  • Invoices with very brief descriptions of goods or services in which insufficient detail is provided.

Read more: Businesses must prioritise preventing fraud and corruption in their own organisations

Dr Claudelle von Eck says the hidden cost of the Covid-19 crisis is an increase in fraud and corruption, and interventions are cheaper than the cost of the consequences of unethical culture.

Claudelle says the reality is that disaster management plans have simply not taken into account the possibility of the extent of what we have to deal with now. Leaders are finding themselves in a tailspin trying to deal with all the issues that are crawling out of the woodwork, one after the other.

She says the three factors that are generally accepted as drivers of fraud are opportunity, pressure and the ability to rationalise illegal behaviour. With more and more organisations being forced to retrench people, it stands to reason that it could result in diminished internal controls (e.g., how do you segregate duties when there are not enough people for all the duties?) and a diminished focus on preventive measures. This creates opportunity.

Salary cuts result in people not being able to meet their personal obligations, and it’s often the white collar workers who are hit hardest, as they tend to sit with bigger amounts of debt. It also stands to reason that many of those who still have their jobs now have to assist extended family members who have lost theirs. This creates pressure.

People also may feel angry at the fact that they are on the losing end through no fault of their own. We are in unprecedented times and desperate times call for desperate measures. That leaves room for rationalisation, and a rather obvious picture emerges.

Read more: The hidden cost of the Covid-19 crisis - an increase in fraud and corruption

MoneyWorks owner Thandeka Zondi cautions against growing cybercrime rates and encourages small business to increase vigilance against growing cybercrimes during and after lockdown.

Thandeka says some small businesses have seen their cash flow dry up without much time to plan, during the lockdown, and many owners are looking for immediate financial assistance, creating an opportunity for a new class of cybercrime that is specific to this new era of financial desperation. Much has been made of the financial assistance that small businesses can get from the government and their banks, and many on the lookout for these, unwittingly fall prey to fraud.

The challenge with financial fraud is that it is designed to look and sound like the adverts that small business owners are used to, so they do not think to investigate it. She suggests small business owners check the following red flags before proceeding:

  • The email address used to send the email. If the company name is not on the actual email e.g., [email protected] it most likely not legitimate.
  • Check the business website and see if the company offering and details match. The phishing scams clone the identity of the company including the NCR and FSCA registration numbers, but change the offering, address and contact numbers.
  • Check the validity of the physical address. Check on maps if the company address exists. Some use legitimate business park names with false building numbers
  • Check the reasonableness of the interest rate offered. If the rate is lower than the repo interest rate or not comparable with what others in the industry are offering, it’s probably also not real.
  • Ask if any upfront fees are required.

Read more: Moneyworks Thandeka Zondi cautions against growing cybercrime rates

 

Managing foreign exchange risk in a time of crisis
Wauko's David Irish flags the dangers of creating more or new risks within your business. He offers some insights into how foreign exchange risk management should be approached in a time of crisis.

These include to take out your foreign exchange policy and read it thoroughly. And review the key factors and parameters that were analysed in order to determine the policy. If you do not have a foreign exchange policy, put one in place urgently.

He says business should ask themselves if they are managing foreign exchange risk as part of their holistic cash flow cycle or on a standalone basis. “Your foreign exchange policy should be part and parcel of a robust treasury management policy that is created to optimise and protect the cash flows in your business. If you do not have a treasury management policy, put one in place urgently.”

Read more: FX risk management in a time of crisis