Fraud perpetrated by employees was growing rapidly, showing the group as the major source of organisational fraud and responsible for the largest financial losses, auditors KPMG’s latest fraud survey revealed on Wednesday.
The study conducted in South and Southern Africa, and which for the first time included public sector organisations, showed that the figure was up by 13% from the previous survey in 1999.
KPMG circulated a fraud survey questionnaire to 1 026 public and private sector organisations in Southern Africa.
KPMG representative Antoinette Panton said only 162 companies responded to the survey, or about 16%.
Respondents indicated that fraud was still a major problem in their organisations and they expected it to remain a problem in future.
She said three quarters of the respondents believed that fraud would increase in the future, due to economic pressures, lack of adequate penalties and law enforcement as well as inefficiencies in the justice system.
KPMG forensic management partner Petrus Marais said: ”Recent years have seen fraud grow in quantum and sophistication. The increasing complexity of financial structures and intensity of business competition has made it more tempting to commit fraud and also more difficult to detect.”
However, organisations could manage this challenge by reviewing and improving their internal controls to reduce the possibility of fraud, Marais said. Such controls were a critical part of detecting and combating fraud.
”Further, the informant or whistleblower is also proving more important with a significant proportion of fraud now being highlighted by this group. Organisations are also encouraged to look to ethics policies, awareness and training in addressing this problem.”
”One should not underestimate the power of the whistleblower legislation. Considered to be amongst the best in the world, South Africa’s legislation appears to be paying off. While providing organisations and employees with the necessary legal mechanisms for combating fraud, it also entrenches the obligation of employers to assist and protect whistleblowers in their organisation; a very necessary part of the whistleblowing process,” said Marais.
He said it was disconcerting to see that while organisations had early warning detection systems, those ”red flags” were largely ignored.
The survey also showed that organisations see ethical standards as important with 71% of respondents indicating that their organisations had policy documents containing guidelines about acceptable ethical behaviour.
”Unfortunately the benefit of these ethical guidelines is eroded by the fact that only 69% communicate their ethical standards to employees, customers and suppliers,” Marais said.
”Even more disappointing is that the 2001 Ethics Survey conducted by KPMG, the Public Service Commission and Transparency South Africa indicates that well below 50% of organisations provide any ethics training to employees.”
The lesson to be drawn from these statistics was that the problem of fraud and dishonesty is primarily an internal one.
”In order to curtail fraud-related losses, organisations must look to internal controls that focus on fraud risks as well as business risks and have fraud prevention plans or strategies which guide management in controlling the fraud risk.
”They must also utilise the assistance provided by the Protected Disclosure Act, and raise the level of ethical awareness across the board,” said Marais.
A similar survey was conducted early this year in Tanzania, Kenya and Uganda, which found that employees in these countries were also major perpetrators of fraud. – Sapa