If you thought 2020 was a tough year it looks as though 2021 could be even more devastating in terms of fraud and corruption. An SNG Grant Thornton survey of over 100 key individuals based in Sub-Saharan Africa, found that most respondents’ organisations suffered fraud losses during 2020 but most do not intend to increase anti-fraud budgets for 2021.

Nearly two-thirds of survey respondents indicated that their organisations had experienced fraud in 2020. 5% of respondents said their fraud cases were still under investigation, which is no guarantee of prosecution, with one respondent commenting as follows, “Preliminary fraud investigation undertaken and report with recommendations issued - and then inaction on the part of management, which has occurred many times”.

You may be wondering why 2020 was such a devastating year for fraud. Well, this quote from Bruce Dorris, the President & CEO of the ACFE sums it up perfectly:

As organizations make cuts in the attempt to operate with a leaner staff, they can find themselves caught in a perfect storm for fraud: pressures motivating employee fraud are high at the same time that defences intended to safeguard against fraud have been weakened”.

 

 

The recipe for this perfect storm included 3 things that converged together:
Pressure

The Covid-19 lockdowns lead to an increase in short term debt, health needs, increased family needs, housing needs and other financial needs.

Opportunity

WFH (work from home) lead to control overrides, reduced transparency, reduced segregation of duties, ineffective fraud detection systems and basically a lack of good corporate governance.

Rationalisation

Reduced employee rewards, job losses. Lack of employer empathy and low employee morale led to ‘survival ethics’ where it was easy for many people (employees, vendors and clients) to justify their frauds.

The above three factors have rarely occurred as significantly as they did in 2020 and are still very much present in 2021!

Hence, the SNG Grant Thornton research questions were grouped into three categories: 1) what happened during the past year, 2) what the current situation looks like and 3) what is predicted for the future. Here is a high-level summary of the results:

1. What happened during the past year?
  • 61% of respondents experienced fraud during 2020. 37% prosecuted the perpetrators and 5% are still investigating the incidents.
  • 42% of the frauds were detected by whistle-blowers/tips, which correlates with the ACFE’s 2020 global fraud survey.
  • 42% of respondents cited ‘distracted employees’ as the primary cause of driving fraud risks in 2020.
2. What the current situation looks like?
  • 60% of respondents said that employees are the current biggest fraud threat to their businesses.
  • Of the 18 most common anti-fraud controls, we asked respondents to choose the top five that they currently rely on to prevent and detect fraud. Here are the top five…
  1. 60% - Code of conduct/ethics
  2. 52% - Hotline
  3. 38% - Internal audit department
  4. 38% - Anti-fraud policy
  5. 37% - Fraud training for employees

Of the top five anti-fraud controls being implemented, four are passive controls with one, fraud awareness training, being potentially active or passive. “This is one of the main reasons why fraudsters seem to be winning the battle. Many organisations are implementing only passive controls or are not monitoring the active controls and so they end up with a false sense of security” said Dr Antonio Pooe, the Director for Forensic Advisory Services of SNG Grant Thornton, South Africa.

3. What is predicted for the future?
  • 48% of respondents said that they expect a significant increase in fraud and corruption in 2021.
  • Even though most respondents feel that fraud will increase in 2021, the majority (41%) expect that their anti-fraud budgets will see no change

Reading the various respondent comments, one of the root causes for this apathy in fighting fraud seems to relate to the corporate cultures. One respondent commented, “The culture of corruption is taken as being normal as long as it suits one's personal purposes”. This leads to employees becoming demoralised as they see a rotten tone at the Top.

Even when these organisations do implement fraud prevention and detection mechanisms, they tend to not work 100% due to the adverse culture - as another respondent pointed out: “Employees protecting their jobs by keeping quiet”.

In summary, 2020 saw fraud incidents rise dramatically, with the majority of respondents have been victims. The current situation is also not good, as most respondents’ internal controls are passive and it’s critical to have a mix of passive and active controls (with regular monitoring) to prevent and detect fraud.

Looking at 2021, 77% of respondents predicted an increase in fraud incidents yet 52% of respondents expect that their anti-fraud budgets will see no change or will decrease during 2021.

The results of this fraud survey do not paint a pretty picture for the future, and 2021 could see even more frauds being perpetrated than in 2020 – unless organisations start taking the fraud and corruption threat seriously.

Now is the time to understand just how prepared you are. A high-level fraud risk assessment would be the first step to find out how strong your anti-fraud defences are and what steps you can take today to combat fraud in 2021 and beyond.

For additional findings from SNG Grant Thornton’s Sub-Saharan Fraud survey or to learn more about forensic services and best practices in fraud prevention, detection and investigation, Contact us.