South Africa needs backup against insidious corporate crime. Can business school training help? Natanya Mulholland reports.

Crime comes in many forms from the most violent and often fatal to minor theft. A form of crime which eats into the fabric of society and can seriously damage an economy is crime in companies. This includes all manner of dishonesty in the workplace for personal gain and happens under our very noses. Why is it that corporates themselves seem to turn a blind eye, and even the media’s sniffer sense has dulled.

Committed by everyone from shop assistants to the chairs of boards, the incidence of insidious fraud, bribery and corruption has shot up in the last year.

According to a recent survey by ITWeb, over the past three to five years over 70% of companies discovered fraud committed by their employees.

Willem Heath, former judge and investigator and now an advocate and head of Heath Executive Consultants, says this is made worse by the fact that companies which experience internal fraud do not report it.

“They want to avoid the bad publicity, reduced productivity and the long and expensive criminal procedures that accompany legal action,” says Heath.

In the few cases which are prosecuted, Heath believes the majority of sentences imposed by the courts are far too lenient: to the extent that they fail to serve as a deterrent.

“There’s also a problem with the fancy and detailed legislation itself, which although wellintentioned, like the new Companies Act (effective 1 April), we do not have the infrastructure needed to implement it. If fraudsters do get arrested, the investigation is usually so poor that it doesn’t lead to a criminal case,” he says.

In Heath’s view we have too few police officers, magistrates and judges with sufficient knowledge of the mechanisms of commercial transactions to enable them to investigate corporate misdemeanour effectively.

“We need highly trained investigators who not only know the law but also have commercial experience and can understand financial statements,” Heath contends.

“Law enforcement officers dealing with private sector crime should go to business school to get to grips with the theory and practical implementation of commercial principles, as well as the basics of internet fraud,” he said.

Daniel Malan, head of the Unit for Corporate Governance in Africa at the University of Stellenbosch Business School, says training in business ethics for law enforcement officers could curb private sector crime.

“You can use ethics to fight fraud and corruption,” said Malan. “If there is a greater understanding of the ramifications of private sector fraud and the various ways it can be played out in the business community, combating it would be easier,” said Malan, a member of a task group on anti-corruption formed by the UN Principles for Responsible Management Education, an initiative to inspire and champion responsible management education, research and thought leadership globally.

Malan believes the benefits of teaching more people about the complexities of crimes like those involving tax swindles, insider trading, securities violations, kickback schemes and computer fraud, to list just a few, would create a greater awareness not just for those operating in the private sector, but also for those dealing officially with private sector crimes.

South Africa is estimated to be losing between R86bn and R120bn per year as a result of white collar crime; thus the educational investment needed is now urgent. The country also rates very poorly on the Corruption Perceptions Index (CPI), which measures the levels of perceived corruption of countries. In 2010 South Africa ranked 54th out of the 178 countries rated by Transparency International, the global coalition against corruption. Denmark, Finland, New Zealand and Sweden are the least corrupt, while Somalia, Afghanistan and Iraq are the worst scorers.

Forensic expert Dave Loxton of Werksmans Attorneys says private sector criminals are becoming increasingly brazen about corruption because they know they can get away with it.

“Just look at the alarming increase in company hijackings, with 40 confirmed cases reported last year, with CIPRO (Companies and Intellectual Property Registration Office), the state agency responsible for maintaining the register of companies, apparently unable to halt the trend. If government is setting a bad example, which it is, then it’s a tall order to expect the private sector to act differently,” said Loxton.

“Only a zero tolerance approach will restore integrity to our economy and change the perception of the average South African, which is that crime does pay and that prosecutions are rare,” explained Loxton.

“Employers and prosecuting authorities need to act boldly. Offenders in senior positions need to be fired and sent to jail,” said Loxton. “In my 30 years of legal practice I have yet to come across white collar crime driven by necessity. It is always greed,” he said.

Indeed ‘the tone at the top’ is critical when it comes to fostering a culture of high ethics and integrity.

According to KPMG’s Calvin Isaacs, who runs Fraud Risk Management (FRM) awareness programmes for departments in the private and public sectors, people in fact do need to be trained to use good moral judgement and to know what is expected of them.

“Employees need to be made aware of their obligations concerning fraud and misconduct and this is possible only through practical communication and training,” said Isaacs.

A recent FRM survey conducted by KPMG in 32 major international companies, across various sectors and countries, revealed a significant gap in fraud awareness and ethical training as part of the broader risk management of many companies.

Isaacs believes that without implementing proper fraud awareness training, either through in-house workshops, business school attendance or online ethics training, companies will fail to provide employees with a clear message that their responsibilities are to be taken seriously.