The question every business owner or manager should be asking is - am I doing enough to ensure I don’t become a statistic or victim of theft? Fraud which is the same as theft (for all intents and purposes) is a serious threat that all firms are faced with. As such all firms should have a plan in place to:
The simple fact is that fraud is “un-fun”, “uninteresting” to read about and an unpreventable risk of doing business. But “undeniably” you, as a manager, need to take steps to reduce the likelihood of fraud taking place and are able to act when/if it does.
Statistics are nice to know - so here are a few facts. According to the US Chamber of Commerce (http://www.inc.com/articles/1999/05/13731.html):
These stats are shocking and if you accept the generalisation (which is mostly media hype) that South Africa is a crime riddled banana republic then our comparative stats should be less rosy. Looking at those stats, two of them should really worry you (as a business owner or manager) - your employees are more than likely to steal from you and 70-75% of them, should they commit fraud, will get away with it.
Lots of firms take great comfort in the fact that they have auditors who will keep them safe from fraud - this comfort is misplaced. It is not the auditor’s job to detect fraud and even if they do pick up cases of fraud the perpetrator could be sitting on a beach sipping Mai Tai’s by the time they detect it.
Within our legal industry, as per the press and industry talk, the last few months have seen internal fraud amounting to more than R40 million come to light - this is a scary number when you think that the legal industry is relatively small compared to others in South Africa.
So we need a plan to manage the risk of fraud and we specifically need a plan to manage the risk of internal fraud. In starting we need to accept the following:
The plan to reduce the risk of fraud starts with having proper processes, systems and good people. Good internal controls covering these areas are key and include:
Over and above these internal controls you should also pay careful attention to the people you hire - spend extra time making sure you are hiring ethical people and do the necessary checks before you hire them. Once hired, you as a manager/owner should “know” your staff - changes in personal circumstances and behaviour could be the trigger for someone (who for all intents and purposes is a “good person”) to consider defrauding the firm. Creating an ethical culture is key. If you create loopholes to account for some receipts and payments, then you are creating opportunities for others to take advantage as well.
The internal controls described above are built into GhostPractice (GP) and should also be built into your system (if you are not using GP). They might seem a bit intrusive and inefficient but they are there to help you maintain a proper and controlled environment.
Lastly, with regard to risk reduction, you cannot devolve responsibility to others - it’s your job as a manager/owner and you should make it a part of your work activities.
Things one should look out for to determine if fraud is going to be easy to commit at the firm include (this is where you should be taking a long, hard look at the firm):
The list above is not exhaustive but should give you a good indication if your firm is “ripe for picking”.
Fraud prevention measures will not completely eliminate the risk of fraud and that’s why you need to implement fraud detection measures as well. These should include:
Again the list above is not exhaustive but should get you thinking about what to lookout for.
Taking action, if fraud occurs, is your area of expertise so we don’t have to go into this but actively trying to prevent it is your duty. Not being a victim of fraud depends on your people, your processes, your systems and YOU. All three areas need to be good but if you don’t manage your firm to limit the risk of fraud, you will be taken to the cleaners...
If you would like to know more about GhostPractice, reducing the risk of fraud or how GhostPractice is driving change in the legal industry feel free to call me, Kuben Naidoo on 084 586 6789 or email me firstname.lastname@example.org.