CHRO SA and CFO SA host webinar about fraud and fraudsters during Covid-19

Webinar explores the subject of fraud and corruption, and why instances are likely to escalate in a Covid-19 world where pressures of the economic downturn.

CHRO SA and brother company CFO SA hosted a webinar on Friday about fraudulent activity and how it tends to increase in times of crisis. Ethics guru Dr Claudelle von Eck, certified fraud examiner Mario Fazekas, and reformed fraudster Brad Sadler gave a riveting account of why instances of fraud and corruption are likely to escalate in a Covid-19 world where pressures of the economic downturn may drive employees to turn to crime for financial relief. Also, with employees working from home, unsupervised and out of sight, the webinar provided enlightening insights around the factors that contribute to fraud, and the solutions organisations need to have in place to stop corruption.

Mario said he expected increased incidences in all categories of fraud – occupational fraud, corruption, and misappropriation of assets – because people are under immense financial pressure at the moment. He said scratch-my-back-and-I’ll-scratch-your-back transactions were bound to “shoot through the roof” because they are not perceived as real crimes while the misrepresentation of financial statements will see more executives will cook the books in order to retain their jobs and get their bonuses. 

“Salaries are being cut dramatically, salespeople are not getting their commissions and the opportunity to commit fraud is up...Even gatekeepers are being retrenched,” said Mario.  

“The internal and external auditors are being told, 'goodbye, we don't need you. You're non-essential.’ And, of course, the rationalisation from employees is 'I could be the next one to be retrenched. My company has no loyalty to me so why should I have loyalty to it.’”

Brad Sadler’s tale

Sharing the perspective of the employee, Brad told the story of when he committed fraud back in 1994. He was the NBS Bank corporate manager at a time when there was no segregation of responsibilities which meant he had the power to consult with a client, complete a loan application, approve it, and sign the cheque. 

“It was very dangerous. Clients became good friends and I would authorise lending based on my relationship with them instead of following the required policies, procedures and controls,” said Brad, whose responsibility it was to devise and implement a system to enable the bank to evaluate the creditworthiness of applicants for credit, and to eliminate the bank's potential losses and risk.
 
But instead, he sidestepped the controls he was employed to devise and implement and knowingly put the bank at risk to the tune of millions of rands.
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Said Brad: “We had a process called grouping whereby, if a bank lends money to an individual and the same person applies for funds in his or her company's name, those loans would have to be grouped together in the risk profile of the client. I realised that if I lent to an individual and I thought he was good for it and his company was good for it, I didn’t have to group the two risks. The reason I did that was that I didn't have to go through extensive approvals so the deals could be done quickly. I misrepresented a potential loss to the business to the tune of R70 million.”

Rehabilitate fraudsters if possible

From an HR perspective, the key to dealing with this kind of risk is twofold – screen employees properly to ensure that people with a high propensity to commit fraud do not find their way into the business, and rehabilitate those who can be rehabilitated. Claudelle explained that there is a wide spectrum when it comes to fraud with psychopaths, sociopaths and social deviants at one end and people unwittingly get caught up in fraud on the other.

“How you deal with a fraudster depends on what you are dealing with on that continuum,” said Claudelle, adding that, if a person commits an offence that is not big enough to dismiss, companies need to invest in putting rehabilitation programmes in place to help the transgressor understand the ripple effect that their actions have. 

“It depends on the organisation's policies as well. Submitting an inflated claim, for example, may not be a dismissable offence. And, sometimes, people are caught unawares because they either don't realise the seriousness of it or they have not yet connected all the dots. And if you don't rehabilitate them, you send people back into society that then become unemployable and are put in a position where they have to misrepresent themselves in order to get another job, thus creating a never-ending cycle of fraud.”

When it comes to dealing with psychopaths, Claudelle said prevention was better than cure, simply because they lacked the capacity for empathy and remorse. She said that organisations would really have to reevaluate their recruitment practices, especially when appointing leaders because a high percentage of psychopaths were in higher echelons of the corporate ladder relative to the rest of the population. 

“That happens because, in order to get what they want, they are willing to do things that a normal person wouldn't do. So HR professionals need to ensure that the measures they have in place will prevent those types of people from entering their organisations,” she said.  

The webinar concluded after the panellists answered questions from attendees about various preventive and rehabilitative measures for dealing with fraud in the workplace.