It has become almost impossible to open a newspaper or business journal without a report on fraud or corruption. Not only does the effect of fraud and corruption damage reputation of companies, it also has a negative impact to the country’s political, social and economic performance.
Therefore, it is very important for leaders of organisation to understand that fraud covers tangible and intangible goods such as time and intellectual property rights, thus compelling organisations need to devise ways to manage the risk of fraud and corruption.
There are a number of elements which constitutes fraud depending on the type of business the organisation is involved in. There are five common elements of fraud in the insurance industry or claims environment which qualifies as fraud and these are:
•The person must make a false claim;
•They must know that the claim they are submitting is wrong;
• The person using the information has to have the intent to commit fraud;
• The pay-out must be based on thinking the documents are truthful;
•There must be some damage, such as a monetary loss.
Fraud is normally not a one man act; it requires multiple players working together. When fraud is committed against an organisation it always requires an insider who is familiar with processes and procedures, someone who has identified the loopholes within the system. These types of crimes can be perpetrated through bribery, conflict of interest, false statements, collusion, conspiracy, extortion and so forth.
Since fraud is not committed entirely from external people it is crucial for management in any business, no matter how small or how big, to understand why employees steal. According to a research by the Association of Certified Fraud Examiners (ACFE), there are three components why employees steal such as:
• There must be a financial need, e.g. employees living beyond their financial means, gambling problems, drug and alcohol abuse.
• There must be an opportunity to commit fraud due to the lack of internal controls within the organisation
• The fraudster must be able to rationalise committing the fraud such as believing that the funds are only being borrowed, or that the employee is underpaid therefore the embezzled funds represent part of the employee’s salary
There is therefore a need for organisations to declare their stance when it comes to actions leading to fraud and corruption. This is however a daunting task for any business because perpetrators are normally well informed about the functions and processes of the business and where the loopholes are. Therefore businesses need to instil ethical behaviour and culture through the “walk the talk” scenario.
Businesses and organisations should encourage employees and the public to report any fraudulent or corrupt activities committed against their businesses. Businesses can make use of different services available in the market in order to safeguard their businesses against fraudulent activities such as the use of tip-off anonymous and whistle-blowers.
Even with the use of services available it is important for management in organisations to appreciate that there is a possibility of not getting any report from the public or employees, but this does not mean fraud or corruption is not taking place in the respective organisations. The understanding why people are reluctant to report fraud and corruption is crucial to management in order to employ effective mitigating factors.
Why are people reluctant to report fraud?
A lot of fraud goes undetected in many organisations. Most organisations rely on their employees or the public to report fraud. However people are reluctant to report fraud in Namibia due to the following reasons:
•Lack of incentives to the informer/ whistle-blower;
• Fear of victimisation especially in companies and in public;
•Absence of Whistle-blowers Protection Act;
•Small community where everyone knows the second or third person;
• Culture of “I don’t want to get
According to Jordan Thomas, one of the partners in the whistle-blower representation practice at Labaton Sucharow; “people with inside knowledge of fraud haven’t always spoken up”. This implies that protection for whistle-blowers has not been sufficient, as well as lack of communication in some organisations.
Employees will reason that why take the risk and talk while people refuse to listen. Namibia is no exception, so now and then you hear through informal conversations that if so and so have committed fraud or corruption but nothing happened to them why should I report them and be a victim. This is the reality we are living with in Namibia.
In order to successfully fight fraud and corruption, it is crucial for businesses to come up with incentives to encourage employees and the public to report fraud. Somehow it is indeed challenging to determine what kind of incentives, when and who should get the recognition for example. Matters come to a head when the value of the potential or actual fraud cannot be quantified. Companies need to determine the type of incentives that will suit their line of business and the type of fraud individual businesses are faced with. Some industries such as construction, manufacturing and insurance or claims environment are faced with an inherent risk of fraud, hence the need to actively manage the risk before it spirals out of control.
We have a daunting task as leaders in Namibia to support the call from the President to fight fraud and corruption through the establishment of the Anti-Corruption Commission. It is our national duty as Namibians to advance the country’s fight against fraud and corruption. PF