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INSURANCE: Leaders Set Tone in Fight Against Fraud

 





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The most effective way for organisations to identify and eliminate employee fraud is for leadership to develop a culture of openness and honesty, providing channels for the reporting, detection and successful prosecution of fraud.

Professional fraudsters target organisations that choose not to face the fact of employee fraud.

By the time a fraudster is caught, he’s already done it several times before and got away with it. “Giving a fraudster a second chance because it’s only R100, or hiding the incident due to reputational concerns, only exacerbates the problem” says Gerhard Labuschagne, Forensic Auditor, Alexander Forbes Financial Services (Pty) Ltd.

These days employee fraud is a sophisticated business. Teams of multi-skilled career fraudsters operate networks that place or recruit members in businesses across all sectors of the economy as well as in Home Affairs and other government departments, including the police.

And they can steal or reproduce almost anything. From cash, equipment, identity documents, personal information, death certificates and disability payments. They can also fake company registrations and launder money through legitimate businesses where employees are completely unaware that they are working for fraudsters. Often it is years before frauds are identified, allowing schemes to steal millions before they are discovered. And even when discovered, fraud is not so easy to shut down if organisations don’t have the knowledge or capacity to correctly charge, prosecute and win cases.

Things usually start going wrong when management attempts to solve the problem internally without a fuss. This attitude often sees companies successfully identifying and removing fraudulent employees, only to botch the CCMA process and see the fraudster returned to work for example.

“When this happens the implications for morale and the spread of a fraud culture are devastating” adds Labuschagne who believes there are three kinds of employees; those who are always honest and will never defraud the company, ever, an equally small percentage of employees who are always dishonest when given the opportunity, and the majority who take their behavioural and moral cue from those around them.

“This is why having an organisational culture, led from the top, that is transparent and visibly tough on any form of fraud is the only way to win this battle in the long run” says Labuschagne.

Since the fraud business operates by infiltrating organizations, fraudsters are particularly good at identifying employee cultures that are more likely to tolerate fraud.

Cultures of silence promote fraud.

As such, leaders need to talk about fraud all the time and make the pursuit of fraud a business goal. Leaders should make it clear that people can approach them at any time to report anything and that the process of reporting will be safe, confidential and professionally dealt with. Most importantly leaders need to ensure that fraud ends in the public prosecution and conviction of the fraudster.

“Leaders who try to hide fraud, fail to take action or dodge pursuing and prosecuting perpetrators create a fraud culture” warns Labuschagne.

Even worse is giving an identified fraudster a second chance, or a retrenchment package allowing them to continue committing fraud elsewhere. Since the imperative to successfully prosecute is paramount in the fight against fraud, organizations are advised to bring in professional fraud consultants at the prosecution phase.

First prize, however, remains “getting your culture right so that organisations are able to identify fraudsters for prosecution in the first place” concludes Labuschagne.


 
 
 
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