Under-reporting of serious economic crimes means that well in excess of 80% of South African businesses are the victims of serious economic crimes, according to Jenny Reid, managing director of corporate security company GriffithsReid.
“A recent PriceWaterhouse [Coopers, or PWC] survey indicated that more than 70% of South African firms reported criminal activity but, given the well-known under-reporting rate, we can be safe in assuming that the real figure is over 80%,” Reid says.
This would tie in with other PWC findings that indicate that Africa has one of the highest levels of reported economic crime in the world — 51% — followed closely by North America, which has a reporting rate of 41%, she adds.
“The PWC research indicates that South African companies with more than 1 000 employees are most at risk from economic crime,” Reid says. However, GriffithsReid research and experience have shown that management and not necessarily employees are the single greatest source of white collar fraud, accounting for about 50% of all such offences.
Even more telling is the fact that three-quarters of all fraud can be directly attributed to preventable corporate issues.
“Some 47% of fraud cases are caused by poor internal controls,” she says.
“Poor hiring practice accounts for 16% of all fraud, poor corporate ethics causes another 14%, while high risk fraud accounts for 23%,” she adds.
This has contributed directly to the PWC findings that almost 40% of crimes uncovered by large companies are discovered by “chance” rather than through an actual awareness that a fraud or theft had even been committed.
“This is also the single biggest reason why good corporate governance has become the burining business issue of the day,” Reid continues. “The King II report specifically mentioned that companies which had good corporate governance policies in place were valued on the open market at up to four times that of equivalent-sized companies without such policies.
“Simple things make the difference,” Reid says. “A proper staff vetting policy, physical security procedures which are far more than just a sign-in book at the door, the protection of intellectual assets and financial transparency might seem petty to a corporation’s board, but can — and have — prevented major problems,” she says.
“Given the relative low cost of implementing these policies — a few hundred rands in staff vetting cases — there is in fact no excuse not to take some of the basic measures,” Reid concludes. — I-Net Bridge