Companies under siege

Authorities in SA are uncovering an increasing number of fraudulent schemes, which they say are being spurred by the booming economy. Credit Insurer CofaceZa MD, Garth de Klerk, points out there have been a number of cases recently in which fraudulent companies have been started for the sole purpose of defrauding creditors. ‘The sudden start-up of a shelf company or new entity in a high risk industry with low start-up or capital costs, is a potential risk,’ De Klerk said, according to Business Day. He said caution should also be exercised when an urgent request for credit cover was received on a Friday afternoon or during the holiday period. ‘Also linked to this is, if a company with a solid trading history of two to three years has a sudden influx of many small (about R50 000) requests across all credit insured policy holders. In our experience this is a strong scam indicator,’ he said. ‘These are merely some of the indicators in which fraud may be a concern.’ Full Business Day report

There are other warning signs, too, notes De Klerk. These could include trade references given from a totally unknown or new company, or if only cellular number references are provided; if the auditors are newly registered or unknown; or the starting date of the business substantially differs from the registration number of the business. Also, if the company’s financials are ‘too good to be true’, The Times quotes him as saying. De Klerk added that in many of these cases the scam involved the buyer absconding shortly after the products were delivered and payments for the goods were due. ‘In such cases the services of a private investing company are then needed to assist in tracing assets that company directors may have moved or estranged. In extreme cases one should even consider walking away.’ Full report in The Times

There are also major fraud risks from within. A recent study by Ernst & Young revealed that small and medium-sized enterprises were being milked dry by employees due to a lack of controls and apathy among senior managers. The study disclosed that one of the most common techniques used by frauds was debtor fraud. It normally took place when a finance manager set up a fictitious company, opened a bank account and deposited stolen cheques in the name of a ghost vendor. David Stulb, global leader of Ernst & Young’s Fraud Investigation & Dispute Services practice, comments in a Moneyweb report: Employees are not hostile to corporate anti-fraud measures, indeed they positively support such programmes. However, they are crying out for their employers to provide clarity and encouragement for them to act positively in the interests of the company. Employees want strong codes of conduct and make high ethical demands on companies in return. Regrettably some employers are failing to persuade staff they feel the same.’ Stuart Waymark, South Africa’s director of Fraud Investigations & Dispute Services at Ernst & Young, notes: ‘In the same vein as the findings in Europe, some South African based companies have set up initiatives to encourage whistle blowing such as offering cash incentives to employees for fraud detection. However, current publicised cases involving fraud and other research has indicated that there is little evidence of reduction in corporate fraud, with one in five companies experiencing significant fraud in the past two years. Companies need to provide a channel for employees or third parties to report fraud.’ Full Moneyweb report Ernst & Young study

Just this week a mother was jailed for stealing from her employer. Denise van Schalkwyk (42), a mother of two pre-schoolers, has been jailed for an effective six to eight months after being found guilty of defrauding her employer, Absa bank, says the Pretoria News. Van Schalkwyk pleaded guilty to 209 charges of fraud, admitting she had taken R867 738.84 from the bank over 21 months. As client services manager, she had access to legal fraud cases reported by clients. She had to channel these complaints to the fraud clerk. If it was found the bank was responsible for repaying clients, Van Schalkwyk had to refund the clients via a cheque. However, she pocketed more than 200 cheques. Full Pretoria News report

The problem is not unique to SA – employee fraud is at record levels in the UK. More than 1 500 staff are dismissed every year for criminal dealings, estimated to exceed more than £40m. The difficulty is preventing fraudsters from entering an organisation in the first place. ‘The biggest danger for firms is the enemy within – amazingly, 80% of fraud suffered by organisations is committed by staff, not outsiders,’ says Steve Bailey, the MD of the candidate-screening service BackgroundChecking.com, which has just launched a fast turnaround service for verifying temporary staff, according to The Times. ‘The real fear for companies is crooks, often posing as temps, targeting not the firm but the firm’s clients, selling bank and personal details to others who then clean the accounts out.’ Typical examples in the CIFAS research included a bank staff member being overheard on their mobile phone in a lavatory divulging the security details of a customer’s account and call-centre staff overriding ‘decline’ decisions so as to open accounts for family and friends. Full report in The Times