Desperate times, desperate measures: when employees commit fraud

The human element is a common thread in cases of fraud.

Fraud can hit organisations from various angles, and even though cybercrime and external fraud attacks are a huge risk, more often than not, many companies realise it is perpetrated from within.

The Global Economic Crime and Fraud Survey showed that 41 percent of economic crimes in South Africa were committed by employees, compared to 36 percent by external fraudsters and 21 percent being a collusion between the two.

International Fraud Awareness Week is taking place from 14-20 November, highlighting an increasing problem that organisations around the world are facing.

Ryan Mer, managing director, eftsure Africa, a Know Your Payee (KYP) platform provider, says it is crucial to be alert to fraudulent activity within your organisation and to catch it as early as possible. To do this, you need to understand what drives employees to engage in fraud.

“From our experience and conversations with clients when assisting those who have dealt with fraud internally, employees do not set out to defraud a company and it is usually someone who has been with the company for some time and someone who is seen as unlikely to participate in criminal activity,” he says.

According to criminologist Donald Cressey’s fraud triangle model, the three factors that can cause employees to commit occupational fraud are motivation, opportunity and rationalisation.

“The past two years of Covid-19 lockdowns have negatively impacted household finances, providing ample motivation and justification for committing fraud. In the minds of many, desperate times call for desperate measures. Organisations need to be cognisant of this and act accordingly,” Ryan advises.

Some of the warning signs exhibited by employees that may indicate fraudulent behaviour include:

  • Living beyond their means: Look out for employees who exhibit a drastic change in lifestyle, suddenly arriving at work in an expensive car, flashing designer gear and boasting about new real estate acquisitions with no real reason for the change.
  • Guarding their turf: A fraudster won’t want to share their duties and may resist taking holidays so nobody can step in for them.
  • Having unusually close relationships with a vendor or customer: This allows the fraudster the opportunity to create fictitious orders or receive kickbacks. Be on guard if a supplier insists on dealing with one specific employee.
  • Working long hours: An employee who comes in early, stays late, works on weekends and does not take sick or annual leave is waving many red flags. This could indicate that the employee does not want to share their responsibilities with other employees who may detect fraudulent acts.
  • Working in a position to commit fraud: Positions that involve administering payments to creditors and suppliers, overseeing and processing invoices and electronic payments, and capturing bank statement transactions present a higher risk for businesses. Fraud can be committed by changing the banking details of suppliers, especially ad hoc suppliers, and adding fictitious suppliers or employees onto the payroll.

    How to prevent fraud
    Business can help to prevent employees from resorting to fraud by:
  • Relieving the pressure: Remove the motivation to participate in fraudulent behaviour by showing empathy for your employees and offering the support they need in good times and in bad.
  • Removing the opportunity: Tighten accounting policies and ensure strong internal controls to prevent payments fraud. A common thread in cases of fraud is the human element.
  • Dealing with rationalisation: Don’t give employees the chance to justify fraudulent behaviour. Develop a transparent and collaborative approach that treats employees fairly, reducing the likelihood of disgruntled employees who get involved in fraudulent behaviour.