Mukondeleli Masiza, Complex Claims Handler: Financial Lines, Liability and Cyber at Allianz Commercial South Africa.

The rising number of commercial crimes in South Africa demands immediate attention from businesses across the country. By implementing thorough employee vetting processes and robust internal controls, companies can significantly reduce their risk of falling victim to such crimes, writes Mukondeleli Masiza, Complex Claims Handler: Financial Lines, Liability and Cyber at Allianz Commercial South Africa.

Whether one attributes it to the current state of the economy, the poor enforcement of relevant protocols and procedures, or the generally poor socio-economic circumstances that many citizens find themselves facing, one thing we can all certainly agree on is that in South Africa, crimes of a commercial nature are increasing at an alarming rate.

To get an idea of the magnitude of this problem, one just needs to look at the statistics provided by Statistica in April 2024, in an official publication of their 2022/2023 findings. According to their report, a total of 112 592 commercial crimes were reported for that period. It is even more alarming that a significant portion of these were committed in Gauteng, South Africa's economic powerhouse.

Whilst these figures are in themselves unsettling, one further needs to bear in mind that they are only representative of cases that have been reported. These statistics exclude instances of commercial crimes that were either not discovered or merely just not reported. To put things in perspective, according to these statistics, we are looking at 308 such instances per day.

With the increase in the reporting of employee-perpetuated theft and fraud cases as well as the financial and reputational impact of falling prey to the same, it is evident that many business owners have already started feeling the impact of the increase in such crimes. Thus, many have begun to take various measures to safeguard their businesses against such risks. Unfortunately, others continue to labor under the impression that the greatest threats come from external parties, completely unaware that many reported theft and fraud cases are perpetuated by or in collusion with the employees of the victim entity.

At Allianz Commercial, we offer Commercial Crime cover on a stand-alone basis. This has given us a front-row seat in the ever-evolving trends within the market. Looking at South Africa in isolation, we have certainly witnessed an increase in the number of commercial crimes claims where one or more of our client’s employees are implicated.

This increase is evident across all the sectors that we insure and without a doubt tells us that any business, regardless of the industry within which it operates, may fall victim to a crime of this nature. Whilst the circumstances that give rise to each claim vary, one common thread is that the insured entity’s vulnerabilities often stem from gaps in processes relating to procurement, invoice/purchase order verification as well as the manual processing of payments. The familiarity that often accompanies the frequent operation of the systems used in these areas, unfortunately, avails employees’ opportunities to best identify and capitalize on any vulnerabilities in the same.

Whilst a company is seldom able to eliminate the risk of falling victim to the type of theft and fraud under discussion, there are effective measures that they can implement to mitigate such losses, the first being the thorough vetting of the individuals that they bring within their employ.

Whilst there is certainly always a first time for everything, more often than not, employees that ‘get caught’ committing crimes such as the misappropriation of company assets and fraud have a history of having been embroiled in similar conduct at prior places of employment, with such conduct either having resulted in prosecution, a mutual separation agreement being concluded by the parties and/or the aggrieved employer (for various reasons) electing to not prosecute.

Hiring employees with an honest disposition is a great mitigator by huge proportions. Whilst there may be a cost attached to criminal, credit, and employment background checks, the prevention of capital losses and reputational damage in the long run is immeasurable.

The second step in mitigating such risk is the development and implementation of vigorous internal controls and procedures. The measures required would depend on the nature of the business but should generally include:

• The establishment of a centralized audit and compliance department.
• The regular performance of internal and external audits of financial systems and processes.
• The ongoing training of staff working in audit and risk departments.
• The segregation of duties through, for example, the implementation of dual controls on all fund transfers i.e., the dual review of all invoices, purchase orders, etc. as well as the approval of payments (where one staff member is responsible for loading beneficiary details and the other authorizes and releases internal and external payments).
• The prior telephonic verification of banking details as well as follow-up phone calls to intended recipients to ensure the funds have in fact been received.
• Restricted access to computer systems, data access rights, user authentication as well as regular password changes.

Whilst the above may go a long way in limiting company exposure, it is important to remember that the perpetrators of these types of crimes are au fait with the applicable system and processes and are therefore scrupulous, brazen, and often undeterred (even in the face of possible apprehension, job loss and prosecution). It is therefore important for companies to ensure that they (in the unfortunate wake of an incident) have adequate insurance cover in place to soften the financial impact of such misfortune.