A Multi-Disciplinary Approach to Fraud Prevention

A multidisciplinary approach to fraud prevention consists of management, staff members, oversight bodies, computer experts, internal and external fraud experts, and legal advisors. As previously stated, management is responsible for adhering to company policies and making sure that all employees do the same. All of the bodies in the organization are responsible for the prevention and detection of fraud.

Staff members have to be trained to identify fraud and misconduct in the work place, and there has to be a reporting line available to all employees, which assures anonymity, and the ignorance or failure to report fraud or other offences should also result in a disciplinary hearing. Employees should be aware of the organization’s ethics policy, and be obligated by their contracts to adhere to the rules and procedures as set by management. Responsibilities in the work place should be given so that all employees are responsible for their own mistakes and misconduct, and disciplinary actions should be taken against employees who violate the code of conduct or ethics code.

The Audit Committee or Board of Directors’ members are mostly from outside the organization and they help the Main Board with operations, because of time restraints, and should have a written charter of responsibilities approved by the Main Board. They are financially literate, and help the Main Board with financial reporting and internal control responsibilities. The Audit Committee has to encourage management to create functional reporting systems, and receive feedback from all fraud cases, and they also have the right to investigate senior managers with the help of internal and external fraud auditors.

Internal fraud auditors are needed within and organization to detect fraud. Responsibilities also include adding value to the organizations operations, and evaluate and improve the effectiveness of risk management, internal controls, and the governess process. By evaluating and improving the governess process, internal auditors contribute to the prevention of fraud, and they communicate and establish values and goals, monitor the accomplishments of goals, ensure accountability, and preserve values.

External auditors’ primary responsibility is to audit financial statements and other information, and give comments on it, making sure that the financial statements of an organization is valid, and that it corresponds with the organization’s affairs. In effect, irregularities have to be reported. External auditors are needed to detect and prevent fraud and errors within the organization, but they can not be held responsible for the prevention of fraud, as that responsibility lies with management. They do however work with managers and the Board of Directors or the Audit Committee to help prevent fraud, by reporting on irregularities and suspected fraud, and providing assessments on the organization’s process for identifying, assessing, and responding the risks of fraud.



Computer experts are needed for implementing effective controls to protect organizations against computer crimes, such as hacking, and stealing information.

Certified fraud examiners have the same duties as the internal and external auditors, but their knowledge is extensive. They can also assist the Board of Directors directly when it comes to investigating senior personnel. They provide better evaluations of fraud risks, gained by experience. They also create operations and tests to resolve allegations or suspicions of fraud, and they report to either management or the Board of Directors.

Forensic auditors investigate fraud within the organization, with the goal to obtain legal confessions and prove the elements of fraud. Their responsibilities include investigation of evidence, analysis and presentation of evidence, supplying information and findings in the form of reports and supporting documents, and assisting in legal proceedings, such as testifying in court as an expert witness.

Forensic accountants are needed in an organization to analyse, interpret, summarise, and present complex financial statements, needed to investigate fraud, as the forensic accountants are experts in accounting and auditing. They investigate and analyse, and create computer systems to assist in investigating and analysing financial evidence, and they document reports on findings, and lastly they also assist in legal proceedings, such as testifying in court as an expert witness.

Legal advisors can be internal or external to the organisation, and they’re duty is to advise and assist the organization in any legal proceedings, for example, taking action against people who have committed fraud.

Management's Responsibility Regarding Fraud

Management is responsible for the organization’s actions, conduct and performance. Their primary objectives are to give relevant, reliable, and credible financial and operational information, make effective and efficient use of the organization’s resources, safeguard the organization’s assets, comply with laws, regulations, ethical and business norms, and contracts, and lastly they have to identify risk exposures and create effective strategies to control risks. With regards to fraud prevention, management has to set high moral standards, provide tools to accomplish organizational plans and follow policies, establish and maintain internal controls, and they have to establish and maintain lines of communication and a reporting system to recognize the risks involved within the organization so that safeguarding plans can be updated.

Managers are responsible for making rational decisions that will benefit the organization. Honesty is a policy, and managers may not have a conflict of interest, or make a secret profit at the organization’s expense, and they must keep insider information within the organization private, safeguarding the affairs of the organization. With that said, managers have to supervise employees, making sure that controls are effective in the prevention of fraud.

They, the managers, may not be appointed as a manager, if such a person has been removed from an office of trust because of misconduct, or has been convicted of any economic crimes, been sentenced to imprisonment, has been convicted of an offence involving the promotion, formation, or management of an organization, or has been found guilty of recklessly conducting business or conducting business with the intent to defraud an organization, or, lastly, has been found guilty of breaching his/her duty as an officer of an organization. Fraud can be prevented by appointing the right person as manager, and in effect, those managers can set the standards for other employees to be honest. Managers are responsible for fraud prevention, detection, and the disciplinary hearings of fraudsters. They have the tools to also check up on employees that fall under them. Looking at employee’s phone calls, e-mails, system logs, clock-in and clock-out times, performance, behaviour, and personal issues can prevent and detect fraud.



Managers are responsible for confronting employees for misconduct and the lack of adhering to the Code of Conduct. If problems arise, managers should implement systems to prevent further misconduct. If, for instance, stationary is stolen, a sign-in sheet or safe can be prevention of further theft within the organization. Or if employees are not working all the hours they’re contract requires, a sign-in sheet or access card system can be implemented to prevent payroll fraud. Checking system logs to see what employees are searching for through the system can prevent identity theft, and double checking on client’s account numbers and invoice numbers on files and making sure that delicate information is kept password-safe, can make sure that employees can’t commit cash fraud, cheque fraud, credit card fraud, procurement fraud, accounts receivable fraud, electronic banking fraud, and computer fraud.

Every system should have adequate security measures, cash tills have to have employee codes and passwords, administered by management.

How to Create and Maintain a Culture of Honesty and Sound Ethics

In order to create and maintain a culture of honesty and sound ethics, the municipality has to start by setting the tone at the top. All employees have to be encouraged to do the best that they can do, and “go the extra mile”. By increasing work ethics, more work is accomplished, but this can only be done if there is a positive work environment. Management is responsible for creating a positive work environment, and it can be accomplished by creating a rewards system that corresponds with company goals, creating equal job opportunities, making sure that team-orientated and collaborative decision making policies are in use, obligating Human Resources to administer a remuneration program, and that all employees are constantly trained with the organization’s main focus on career development.

A negative work environment is created when management acts inappropriately, and they don’t recognize good behaviour and performance. If management acts autocratic rather than participative, they can set unreachable goals, making staff stressed, especially when goals aren’t met, and problems have to be discussed with management. As seen with TELCOM, employees have low loyalty to the company, and work ownership is not a priority. We can speculate that they are not trained well, and that there is a lack of clear communicated organizational responsibilities and methods. For the Summersby municipality, they have to set reachable daily goals, and the employees need to be trained sufficiently, making sure that they can advance in the organization, with the proper rewards systems in place.

All employees have to be vetted properly by checking criminal records, civil records, disciplinary records, insolvency, qualifications, technical competence, and employees have to go for psychometric testing. When training employees, they have to understand the organization’s values, and adhere to the Code of Conduct as set by the Board of Directors. The work environment it self has to be neat, organized, and has to have working systems and equipment to fulfil daily responsibilities. There has to be a functioning work routine, and employees must communicate problems with management.



Weekly staff meetings can create the perfect opportunity for staff and management to communicate goals, problems, and organize team decisions for new operations or things like team buildings, staff rewards, year end functions, and even birthdays, holidays, congratulating staff members on getting married and having baby showers. All of these opportunities create a positive work environment. It can also be suggested that and employee be the head of functions and team buildings, who can receive a budget for events like Valentine’s Day, Christmas, birthdays, etc. It is well known, that if an organization shows that it takes care of its employees, the employees will be proud of their work, creating a positive work environment, making the organization’s performance better than companies that don’t reward their employees.

Not neglecting controls, there has to be an effective disciplinary system in place, especially when it comes to fraud, corruption, and theft. These matters should be addressed in the Code of Conduct. The audit committee or board of directors has to work with internal and external auditors to create and maintain a working internal control system, which should be constantly improved as relevant matters are addresses. Violators should be investigated and appropriate and constant disciplinary actions should be taken against them. Employees have to be aware of all security controls and measures, and they should be trained to identify fraud, and a report system has to be in place, making sure that all staff members are responsible for taking action against violators, and the lack of reporting crimes must also result in a disciplinary action. Reporters must remain anonymous to prevent grudges. Effective grievance procedures must be put in place to relieve work stress and anger, thereby preventing violations against the organization’s policies.

Why organizations Can Not Prevent Employing Future Fraudsters

Although proper methods are used to prevent fraud, there will always be employees that are dishonest. There are many ways to commit fraud, and a dishonest person that seeks for opportunities may very likely succeed in committing fraud. The need and greed for money or goods may exceed an employee’s salary, leaving the organization exposed to opportunists and organized fraudsters to defraud the organization. 10% of all employees are dishonest according to researchers.

Identifying potential fraudster is not easy, because fraudsters are not unique in appearance, they are usually conscientious employees who are considered above suspicion, they are intelligent, sly, and eloquent, having the ability to lie and manipulate others, they also often operate from a position of trust, having influential friends who can save them when they are caught, they are usually psychopaths and they are conversant with the law of fraud. They’re outer appearance is professional. They are neat and they wear nice clothes, always portraying a confident, egocentric image. Fraudster’s crimes are usually planned well, with an organized escape route, might something go wrong.



Mostly, fraudsters can only be caught after the crime is committed, by observing their behaviour. After the fact, they can feel good, indifferent, guilty, or they can fear the discovery of their crimes. So, overall, even after proper vetting, an organization can still employ a potential fraudster, because they will only be identified after fraud has been committed.

The Effect of Fraud and Motivation for Fraud Prevention

Victim organizations of fraud are left with a loss of money or goods, costing organizations millions of Rands each year in losses, lawsuits, the detection and investigation of fraud, and increasing costs to replace the losses. When organizations publicise fraud committed within the organization, these actions can be detrimental to their good reputation. The overall feeling when fraud occurs is negative. When a negative work environment is created, it increases the risk of fraud. Employees of an organization may feel that they have been used by the company, and may want to take revenge by committing fraud.

Creating a positive work environment and positive staff morale will decrease fraud in an organization, because employees will feel good about themselves and the work that they are providing. Creating a positive work environment can bring extra costs to the company, for example, team buildings, rewards, etc. all costs money. The costs involved to prevent fraud, will be less than frauds committed, the detection, and the investigation of frauds. As the saying goes, you have to spend money to make money. To further prevent fraud, an organization has to pay for the proper vetting, and training of new employees, especially when it comes to fraud. When employing new people, it is better to check their criminal records, phone their references, look at disciplinary records from previous businesses, audit their CV’s, do background checks regarding insolvency, test their technical competence, and also send them for psychometric testing, making sure that the best candidate for the job is appointed, decreasing the risk of fraud.



Training employees will usually consist of the organization’s values, a code of conduct, and their job requirements and system training. It is the organization’s responsibility to make sure that focus is placed on career development. Daily statistics and goals should not be set too high, if it is unreachable, employees become negative and unmotivated. A person who is good at his/ her job will feel proud of standing out among the rest. The better an employee is trained, the better the employee will perform, increasing business for the organization, and staff morale.

Competent organizations have better reputations than incompetent organizations. With regards to the code of conduct in an organization, it must have a duty list regarding fraud enclosed. The fraud statement must list the types of issues, including actual suspected fraud, and a list of specific examples of fraud. Steps on how to report fraud has to be communicated, and anonymity is a must. Although training employees and creating a positive work environment will cost a company large amounts of money, the money saved in doing it will be larger.

Motivation to Commit Fraud

Motivation for committing fraud consists of four factors, namely greed, opportunity, need, and a lack of ethics. Greed is human nature, and can not be changed by any authorities, only by a person’s ethics. Financial need is everywhere, and is a big motivator for people who succumb to fraud. Their needs can be legitimate, where there is illness or emergency, the need can also be self induced, where drug addicts or gamblers might commit fraud to feed their addictions. The need may also be perceived because a person might only do it to be liked, or to be popular, usually because such a person has an inferiority complex or is socially insecure. Ethics are created by how a person is raised, if a person is disciplined and knows the difference between what is right and wrong, they are less likely to commit fraud, but where there is a lack of ethics, a person would already be used to committing crime, and would not have the self-control to withstand the temptation of committing another crime. Opportunities are created by rapid technology changes, globalization of organizations, and the relaxation of crime barriers.

68% of researchers believe that fraud is increasing, but it’s impossible to know for sure because many fraud cases aren’t detected, or detected too late, and many organizations handle fraud cases privately and never make it public or report it. Fraudsters are becoming more sophisticated as technology improves, and more people will commit fraud because there is a huge need for more money and the economic pressure to survive and become successful is increasing. Also, there is a lack of adequate penalties and law enforcement to persecute fraudsters, combined with the ineffectiveness of the justice system, which could cause an increase in fraud. A lot of fraud goes unreported, leaving the fraudster to commit fraud again and again, because the police are incompetent, the organization’s losses created by the fraudster are unrecoverable, and organizations don’t want to be tied up in criminal procedures that could last years.



Where people have a big need for money, or they have a low morality, or there is unsound control measures in an organization, or perpetrators tell themselves that fraud will only be temporary and they will repay the organization, there will be fraud. The funds rarely get repaid, and fraudsters get used to the easy money, and keep on committing fraud, creating an increase in fraud. Fraud might be committed because a person feels that the organization has done them harm, or because they think that everyone is doing it, and they can do it too. Organizations may commit fraud because of economic pressure and competing with other organizations. They sometimes make rash decisions, publicize false future estimates, distort facts to hold of divestment, and deceive to survive, deceive to succeed, or inflate profits to obtain advantages in the marketplace. A few other factors might lead a person to commit fraud within an organization like low staff morale, ineffective security controls, ineffective code of conduct statements and fraud policies, and appointing employees that weren’t vetted properly.

Another example that has been occurring all over South Africa is building contractors that take the required amount of money from consumers, start building on the premises, but seldom have finished, and they target hundreds of people each year. Electricians and handy men are also common fraudsters that overprice statements, and sometimes don’t do any work at all. All these contractors will keep committing fraud until they are caught.

Intimidation

The Intimidation Act 74 of 1982 criminalises two offences related to intimidation.

The first offence is described in section 1(1) as:

A person (perpetrator) who threatens someone (victim) to do something or to fail to do something (to act or not to act), or intimidates the victim to abandon his/her beliefs or standpoints by assaulting, injuring or causing damage to the victim or by threatening to kill, assault, injure, or causing damage to the victim or a group of people of a specific nature, class, or kind; is guilty and can be given a maximum fine of R200 000 or can be given a maximum prison sentence of ten years, or both a fine and a prison sentence. A perpetrator can also be fined and/or sentenced to prison if he/she/they make a person fear for his/her/their life or property, by verbal or written threats.

The second offence is described in 1A(1) as:

A person who either alone, or with another party commits an act of violence or plans, encourages, gives permission, commands, or commits any other act that causes acts of violence or might cause acts of violence against the general public, or a part thereof, is guilty and can be sentenced to a maximum of 25 years imprisonment, or a fine ordered by the court, or both a fine and imprisonment.

The Intimidation Act was created to prohibit certain forms of intimidation and to provide for matters connected therewith.

Section 1(1) covers intimidation regarding individuals. A good example of intimidation as described in S 1(1) is mafia or gang members. They would threaten their victims with death or they would damage their property to obtain money or goods. Or within the gang, members would threaten each other to act on matters or ignore it.



Section 1A emphasizes on large groups of people. The most recent example for this would be Julius Malema singing “kill the Boer”. His act intimidates the white population of the country, by instructing people to spread fear into the hearts of boere, or even act on the rage created by the song.

Although there is a lot of intimidation acts in South Africa, a lot of cases go unreported, because the victims are afraid for their lives, or the lives of their family, or the damaging of their property. From a psychological standpoint, threatening behaviours are supposed to be a maladaptive outgrowth of normal competitive urge for interrelation dominance generally seen in animals.

Like all behavioural traits it exists in greater or lesser manifestation in each individual person over time, but may be a more significant "compensatory behaviour" for some as opposed to others. Behavioural theorists often see threatening behaviours as a consequence of being threatened by others, including parents, authority figures, playmates and siblings.

Intimidation can also be linked with assault, domestic violence, murder, attempted murder, vandalism, kidnapping, etc, as a perpetrator might act on his aggression or try to gain advantage in the mind game that he/she is playing.