Christo Snyman, CEO of a top forensic investigative services company, CS Forensics

While South Africa’s anti-organised crime legislation and regulatory framework is widely regarded as being robust, a lack of capacity and resources have thwarted attempts to clamp down on opportunistic criminals. Nowhere has this trend presented more acutely than in the realm of employee fraud. In light of the potentially devastating impact of these crimes and the far-reaching effects of reputational damage, South African companies need to become aware of the pitfalls this has on the business.

Commenting on this is Christo Snyman, CEO of a top forensic investigative services company, CS Forensics. Snyman explains that detecting and preventing employee fraud is not just about protecting an organisation’s bottom line, it's also about preserving the trust and credibility that form the bedrock of any successful business. For South African corporates, effective risk mitigation strategies can go a long way in preventing employee fraud from spiralling out of control.

“In combating cases of employee fraud, constant vigilance is a best practice principle that should materialise as robust internal controls. In addition, forensic audits and investigations conducted by third-party service providers are key components of the fraud detection and prevention process,” says Snyman.

The real cost of organised crime: the facts and figures

According to the Africa Organised Crime Index, South Africa ranks 5^th out of 54 countries on the continent in terms of its rate of criminality. Snyman says “the nature of organised crime in the country varies, but includes financial crimes such as money-laundering, corruption and tax fraud, which is a lot of what we see unfold in employee fraud.”

Homing in on the impact of crime on South Africa’s corporate sector reveals similar findings. The most recent Occupational Fraud 2022: A Report to the Nations, published by the Association of Certified Fraud Examiners (ACFE), found that South Africa tops the list of Sub-Saharan African countries in terms of its high incidence rate of organisational fraud.

On the global scale, South Africa ranks 7^th out of 193 countries, with Nigeria in 6^th place, and Congo in 5^th. This is according to the Global Organised Crime Index.

Payroll fraud: a case in point

Talking to some of the most prominent kinds of employee fraud within our corporate environment, Snyman refers to a recent case whereby an employee of a travel management company went on to be employed by a retail service firm and was found to have defrauded both companies of over R500,000.

A member of the company’s management team flagged suspicious salary payments and other payroll-related transactions.

Snyman explains, “when we reviewed the multiple documents and assessed the company’s financial records, we found that the employee had manipulated the firm’s payroll system to prevent PAYE tax from being deducted from her salary. She also withdrew from the company provident fund to ensure that no deduction was made from her salary – an action taken against company policy”. The employee was also found to have sanctioned other payroll-related funds to be allocated to accounts which had been fraudulently created on behalf of fictitious employees.

In cases such as these lie important insights into the seriousness of payroll fraud. Some of the most common ways in which this type of fraud plays out is through the payment of ‘ghost employees,’ the falsification of hours worked or the creation of fictitious overtime used to inflate paychecks. In the instance of the case investigated by Snyman and his team, the suspect was successfully prosecuted and sentenced.

Critical ways of curbing employee fraud

Snyman recommends measures such as regular surprise audits, conducted with sufficient frequency to uncover inaccuracies or discrepancies that may indicate fraudulent activities. In addition, it's imperative for companies to pay special attention to the payroll system, conducting frequent checks, especially during employee departures. Keeping both systems and employee files consistently updated is vital for accurate financial records.

A meticulous examination of bank statements is equally essential. Verifying the details of bank numbers ensures that funds are channelled into the correct accounts. Furthermore, implementing a payment audit trail will add an additional layer of scrutiny to the process, enabling a comprehensive overview of the accounts into which money is deposited.

“In cases where suspicions arise, the importance of forensic imaging and analysis cannot be overstated. Obtaining company laptops and cell phones for this purpose is a critical step. The process involves an in-depth examination of emails, documents, and an analysis of the payroll system to ascertain what has been disbursed and what remains unpaid,” says Snyman.

This scrutiny extends to verifying the identities of employees—ensuring that they are genuine and that their details are accurate. As Snyman concludes: “such comprehensive forensic measures serve as a robust deterrent and detection strategy, fostering financial transparency and safeguarding the company's assets.”