Whether we like it or not the general consensus is that the economic outlook for the rest of 2017 is looking bleak. And it seems that 2018 is not going to look any better.
You can be sure that your staff are feeling edgy – retrenchments is the big buzz word at the moment and every Board is having to account for its head count, often requiring that the CEO’s approval for any new appointments.
In an environment where people are squeezed you can expect the risk of white-collar crime to increase.
I like to give over experiences that I have with my clients where there are significant lessons to be learned.
So here is a strange but interesting account of fraud at a high level.
My client was the group financial manager reporting to the CFO. The company was a large manufacturing company with two huge factories, employing over 1,500 people.
The circumstances were rather odd in that, although they were somewhat apart on the organisational chart, they were good personal friends outside the work place.
My client (let’s call him Martin) really liked the CFO as a person and found him a great mentor and supporter.
And then he nearly killed himself in a car accident speeding to the airport to collect a fellow colleague.
As part of the process, Martin agreed to become more involved with payment process and carry a bit more of the stress.
If you would have lined up 100,000 possible types of people who might have defrauded the company, the CFO would have been the last in line.
He was a 60 something CA(SA) with an impeccable track record. He had been with the company for over 20 years and had diligently worked his way up through the ranks with hard work and personal sacrifice. He was a solid guy with a strong character which included unswerving loyalty and dedication.
He defrauded the company of what in today’s terms would be about R5m.
How did Martin pick it up?
Well to put it mildly, purely by accident!
No said Martin. The CFO ran the IT division – it was his pet baby and he delivered on the task efficiently and effectively and the message to all others was ‘hands off’!’ From time to time, in order to keep costs low, unconventional methods were used to obtain cheaper IT skills.
Whatever the CFO did in his wisdom, he always got a fellow director to counter sign. This kept the proper governance in place.
So back to the cash payment.
Martin was comforted by the fact that the cheque requisition was countersigned by the HR director and therefore would have accepted it unequivocally.
You can imagine Martin’s surprise when the HR director denied any knowledge of the payment.
Martin showed him that the authorised payment requisition bearing his signature but he was adamant that he knew nothing about the person or the payment. On closer examination they both noticed that there was no pen indentation on the paper – the signature had been cleverly photostatted onto the document.
“It’s amazing how these things unfold”, reflected Martin. “When I approached the financial manager for an explanation, she calmly pulled out a file stuffed with similar payments. When I asked her how this had happened, she correctly replied that all previous payments had been ‘signed off’ by the HR director!”.
One in particular was a weekly petty cash drawing by the Group CEO of R10,000. Martin had been told that it was a special arrangement that had been approved by the Board. The CFO claimed he was instructed to disburse this every week and substantiate same with expense chits. He just wanted to show Martin these withdrawals and obtain a counter signature as he claimed that he did not agree with this underhanded way of adding remuneration to the CEO.
This all happened between 8.00 am and 9.00 am and, by the time the CFO arrived at work, Martin was sitting in the CEO’s office with all the evidence laid out on the boardroom table.
“If anything”, Martin said “It was distressing to see the hurt on the CEO’s face. He had trusted this man with his life for many years. I’m not sure he ever got over the shock of this deception and corruption. It was as though he had lost faith in integrity of human- kind.”
Faced with the blatant truth, the CFO could not deny his actions. He was put on immediate suspension and a formal dismissal process ensued.
The company never laid charges. They recovered the missing funds plus interest from the CFO’s pension fund surplus.
Martins parting remark was “The sad part for me was that he never showed any remorse. I lost some of my faith in the human condition – the degree of his deviousness and skulduggery was appalling!”
The moral of the story? Always be questioning. Trusting is risky and dangerous. I’m not suggesting you become a bloodhound – just be vigilant.
A good place to start is to review your Employee Fidelity insurance policies. This type of cover is worthwhile as it protects the company against employee theft and fraud. Your internal controls can be impeccable but collusion will penetrate any good system – fraudulent collaboration cannot be ruled out and is usually the cause of most material frauds. (A lot of companies do not take this cover as it can be expensive – taking a higher excess, can bring the cost down substantially).
In my experience I have discovered a number of frauds. But all pale into insignificance compared to the one described above.