Crisis boosts white collar crime

Cape Town - With economic conditions worsening, forensic auditors are reeling in business as company employees turn to crooking the books to meet their financial obligations.

Forensic auditors say white collar crime "which includes fraud, corruption, expense claim manipulation and fiddling with financial statements is on the increase as the economy slumps."

Price Waterhouse Coopers associate director Linda MacPhail said: "It's common to see an increase in the level and severity of fraud and other economic crimes being committed during a downturn as individuals and companies are undoubtedly feeling the current pressures, therefore the risk of fraud increases as a consequence."

Reserve Bank governor Tito Mboweni has repeatedly expressed concern about household debt levels. And Statistics South Africa said this week that the economy contracted by 1.8% in the fourth quarter of 2008, raising debate about the country entering a recession and the threat of further financial pain for individuals and businesses.

Although he could not provide statistics, Superintendent Jerome Hardenberg, from the SAPS commercial crime branch, said: "There is definitely an increase in the incidents of white collar crime reported in the last few months."

Hardenberg said the complexity of crimes had grown as had the "increasing ingenuity" in concealing crimes from detection.

Fallen prey

"It also appears as if more and more people in fiduciary positions within companies are recklessly turning to white collar crime," he said.

Statistics are not available for economic crime levels over the last six months, the period during which the global economy has hit the skids.

But according to a Price Waterhouse Coopers survey published in October 2007, South Africa has an economic crime level higher than the global average.

The survey indicated that 72% of companies in South Africa had fallen prey to economic crime in the previous two years leading up to 2007. This was higher than the 42% global average.

While fraud was committed by people at every level, department figureheads were responsible for 17% of all reported frauds.

MacPhail said a triangle of opportunity, motive and rationalisation was often referred to when explaining why people committed white collar crime.

'Every penny counts'

Opportunity generally occurred through weakness in internal company controls and created an atmosphere where fraudsters believed they were likely to be successful in committing the crime.

The motive to commit the crime, however, often developed from financial pressure resulting from excessive lifestyles. Rationalisation referred to the self justification process engaged in by the individual committing the crime.

Deloitte & Touche forensic expert Phyllis Atkinson said although statistics were not yet available to prove that white collar crime had increased due to the current economic woes, debt was a significant factor as individuals tried to maintain their lifestyles.

White collar crime was therefore a temptation as people saw it as a way to get out of their indebtedness.

KPMG forensic unit director Herman de Beer agreed that financial debt was "definitely" a driving force.

But De Beer said perpetrators were usually caught out and exposed during tough economic times because "every penny counts".

However, in tough economic times, De Beer said white collar crime could lead to companies going down as a result of the losses they suffered.

Ernst& Young associate director of forensic investigations David Coleman warned of the costs to the overall economy of white collar crime.

"Any crime had costs to the economy and resulted in taxpayers having to foot the bill. It resulted in taxes being raised, businesses paying more to control their operations and the government being destabilised, which reduced investment," he said.

- City Press