Are You Doing Enough to Combat Fraud?

While fraud has, and will sadly continue, to affect many businesses, we note that where a business has been incorporated or legally constituted, the ‘overseers’, i.e. directors, trustees or partners, labour under weightier legislative and common law requirements to act with due care and skill. It would therefore better serve any senior office bearer to regularly consider its attitude toward sound internal controls to prevent and detect threats of fraud.
 
Fraud and Corruption: Knowing the Difference
 
Although the words fraud and corruption are frequently used interchangeably, the elements required for these and the concepts these words encapsulate are fundamentally different in nature and therefore require different justifying strategies.

• Fraud is defined as ‘the intentional act of deception or misrepresentation carried out to gain an unfair or unlawful advantage, typically causing financial or reputational harm to others.”[1]
• Corruption, on the other hand, is defined as ‘the abuse of power or entrusted authority — often through bribery, nepotism, or favouritism — to achieve personal gain.”[2]

 
Understanding this distinction is essential for businesses to implement targeted, effective internal controls and risk management practices. A cost-effective control that we found regularly overlooked and, at times, being considered insignificant due to the prevailing believe that focus is to be given to mechanisms and practices that will increase the bottom-line, is the non-adherence to - or even implementation of Human Resource policies. (The latter will be expounded upon in a follow-up article.)  
In South Africa, beside contractual agreements[3], several legal instruments exist where companies, government and quasi-government institutions are required to be audited[4] for the purpose of such audits, are usually to:

• detect and prevent fraud
• deter or reduce financial loss
• prevent reputational damage
• avoid legal and regulatory consequences
• avoid operational disruption
• provide investor and shareholder confidence.

 
Based on these, it is evident that one of the main reasons for performing audits is to hopefully uncover situations where employees or managers appear to follow rules and regulations but are manipulating systems or processes to conceal unethical or illegal behaviour. We note that the responsibility to prevent, detect and avoid fraud is that of those in charge of the entity. The responsibility[5] of the auditor is to have the necessary degree of scepticism to detect when fraud has occurred.
 
While fraud may occur in every cycle within a business, a growing concern is that an increase in fraudulent practices has been noticed in the procurement, finance, and supply chain divisions of many businesses. Because of this, a list of some of the national legislation and corporate governance frameworks are highlighted for consideration by businesses in their fight against fraud and fraudulent practices. These referred legislative instruments were created with the partial intent to negate and prevent fraud in its various forms.
These legislative instruments are:
 

1 Prevention and Combating of Corrupt Activities Act (Act 12 of 2004)

This act criminalizes various forms of corrupt behaviour and mandates the reporting of such conduct. It serves as a foundation for anti-corruption efforts across both public and private domains.
 

2. Companies Act (Act 71 of 2008)

This legislation outlines the responsibilities of company directors, promotes transparency through financial disclosures, and requires the formation of audit committees to oversee governance practices.
 

3. Financial Intelligence Centre Act (FICA) (Act 38 of 2001)

FICA aims to curb money laundering and related financial crimes. It compels businesses to perform due diligence on customers and report suspicious financial activities.
 

4. Protected Disclosures Act (Act 26 of 2000)

Commonly referred to as the Whistleblower Act, this legislation protects employees who disclose information about misconduct, promoting a culture of openness and accountability.
 

5. King IV Report on Corporate Governance (2016)

Though not legally binding, the King IV Code is widely respected and adopted. It advocates for ethical leadership, responsible corporate citizenship and effective governance. The report recommends that organisations:

• Conduct regular fraud risk assessments
• Establish ethics and audit committees
• Implement secure and confidential whistleblower reporting channels
• Foster a culture of integrity and transparency

 
Conclusion: A Call to Ethical Action
 
Fraud, especially when disguised as compliance, can seriously harm a business in the long run. South Africa has strong laws and governance systems to fight fraud, but they only work if applied consistently and proactively.
 
To truly protect themselves, companies must do more than just follow the rules. They need to build a culture of honesty and accountability. This means regular audits, employee training, and promoting ethical behaviour at all levels.
 
By aligning their internal policies with both local laws and global standards, South African businesses can reduce the risk of fraud and help build a more trustworthy business environment.