How to spot a fraudster in your company


Cape Town – The typical South African company loses around 5% of its annual revenue to fraud, according to Christo Snyman, national director of forensic services at Mazars.

Employee fraud, therefore, impacts a significant number of South African companies, resulting in major losses.

It can potentially even drive companies into insolvency.  

But predicting which employees are capable of committing major fraud against a company is more difficult than expected, he explained.

“Perpetrators of fraud are often the employees that no-one suspects. They are typically people everyone works closely with, so no one sees the warning signs,” said Snyman.

One of the biggest problems, in his view, is that many companies do not have adequate “basic” anti-fraud measures in place.

“Instances of fraud and money laundering often go on for months before they are detected. This is one of the reasons why a global study by the Association of Certified Fraud Investigators has found that over 23% of employee fraud cases result in a loss of at least $1m (nearly R14m), and nearly one third of fraud instances lasted for at least two years,” said Snyman.

The same study showed that when more people are involved, the losses will be exponentially higher. On average, five or more conspiring individuals can be responsible for ten times the loss that a single individual is capable of.

Due diligence

Even worse, in his view, is the fact that some companies do not conduct due diligence when hiring new employees.

“We have already seen one case where a woman who had previously been convicted of fraud, was employed in the accounts department of a Western Cape school. She went on to commit theft of R500 000 from the school before being sentenced to 12 years in prison,” said Snyman.

“In another case we discovered that a company had employed someone while this person was actively under investigation for conduct relating to fraud and theft at her previous employer.”

Instances of fraud are most common within companies’ accounting departments.

“People often commit fraud and theft by creating false invoices, or simply diverting company funds to their own bank accounts and skimming excess amounts,” he explained.

Three key elements

“Over the years we have seen a pattern emerge from the cases we investigated, and it is clear that the presence of three key elements make fraud possible.”

First, there is always the opportunity for a fraudster to commit fraud or theft.

“Lack of proper controls within a company creates a low-risk environment for fraudsters, which usually sets the ball rolling,” said Snyman.

The next element concerns the fraudster’s incentive.

“In almost all of the cases, the fraudster has a reason that compels them to commit fraud or theft. Gambling or drug addictions are very common, as is excessive debt. This usually also means that the chances of recovering stolen money are low, as stolen funds tend to get spent about as quickly as they are siphoned,” he said.

Lastly, fraudsters have an attitude of rationalisation.

“Believing that one is entitled to the money, be it as a result of being underpaid or some other perceived injustice, makes it much easier to commit a crime, it seems.”

Red flags

He said it is important to look for red flags when dealing with suspected company employees.

“It is important to clarify that these red flags by no means indicate that a person is committing fraud. However, if one sees warning signs, it may be wise to do some further investigation,” he cautioned.

Aside from addiction and financial trouble, fraudsters tend to keep unusual office hours.

“If employees habitually come in extremely early or work late for no apparent reason, an employer has the right to start asking why. We also see that in some instances fraudsters were reluctant to take leave, since they probably did not want their activities to be discovered while they were away. Very often these employees live well beyond their financial means,” said Snyman.

In his view, it is imperative for businesses to conduct ongoing audit reviews of their operations.

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