'Fraud could cripple SA'

Johannesburg - "Behind every corrupt official, contract or tender there is a company involved in the process of corruption."

This is according to Bart Henderson, president of the South African Institute of Corporate Fraud Management. Henderson said South Africans are becoming increasingly aware of how fraud is penetrating not only the public but also the private sector, and the crippling effect it has on service delivery and the economy.

Henderson said the regularity of fraud causes concern. "You never know when it is going to happen, but you know that it will happen," he said.

"Without expecting anything today, you can wake up tomorrow morning to the news that yet another company is going to collapse [due to fraud]."

Earlier this week, education and training group Adcorp was hit by allegations made by senior managers that its board was involved in unscrupulous behaviour. The group of managers demanded a R20m settlement.

On Tuesday, Finance Minister Pravin Gordhan announced that warrants for the arrest of Barry Tannenbaum and Dean Rees had been issued for their alleged involvement in a Ponzi or pyramid scheme, in which investors allegedly lost more than R2bn.

Henderson said fraud and corruption can have a devastating effect on investors and the economy.

In one of the biggest fraud schemes of the 1980s, 16 pensioners who invested all their money in Masterbond committed suicide after learning that their investments were worthless. A total of 22 000 Masterbond investors lost their money by collectively investing about R650m in non-existent properties.

Sold shares and skipped the country

Henderson said in most cases of corporate fraud executives collude with their bookkkeepers or auditors.

A case in point is the Fidentia scandal, which was uncovered in 2007. It was masterminded by Fidentia executive chairperson Arthur Brown, who colluded with his financial director Graham Maddock to swindle about R680m from the widows and orphans of deceased members of the Mineworkers Provident Fund and the Transport Education and Training Authority.

Another concern, according to Henderson, is that very few cases go to court. Companies tend to resolve the matter internally and even when they do take legal action, there is no guarantee of a conviction.

After the embezzlement of R242m from Sentula Mining in 2008, it was reported that the firm was taking legal action against Jason Holland, its former finance manager and the director of its subsidiary Megacube Mining (formerly known as Scharrighuisen Opencast Mining).

However, after selling his shares, Hollard skipped the country to live in the United Kingdom.

"We are staring down at a catastrophe if we don't address the levels of corporate morality in SA," said Henderson.

- Fin24.com