Fraud and corruption are probably two words frequently heard in South Africa, they have become normal. With white collar crime on the rise, employers need to familiarise themselves with the risks and understand how to prevent crime with their organisations, as it can have debilitating consequences.
What is White Collar Crime?
South Africans are well acquainted with the terms, ‘Fraud’ and ‘Corruption’. In a recent Supreme Court of Appeal (SCA) judgment, it was noted that the punishment for white-collar crime made the “game seem worth the candle” (Venter, 2018).
White collar crime, also referred to as commercial crime, financial crime, economic crime and corporate crime, can be defined as: “crimes committed by a person of respectability and high social status in the course of his occupation” (Budhram & Geldenhuys, 2017). This definition was later extended to include an “illegal act or series of illegal acts committed by nonphysical means and by concealment or guile, to obtain money or property, to avoid the payment or loss of money or property, or to obtain business or personal advantage” (Edelhertz, 1970). Moreover, white collar crimes are violations of the law committed in the course of a legitimate occupation or business pursuit, usually by individuals who are well-respected within their community (Coleman, 1987).
Very few cases of white collar crime are reported to the South African Police (Budhram & Geldenhuys, 2017). In an organisational setting, employers usually deal with the employee internally but fail to prosecute the wrongdoer in accordance with criminal law. Consequentially, the white collar criminal walks away unscathed and is left free to prey on other organisations.
Generally, South African society seems to have a permissive attitude towards white collar crime, perhaps because we do not want to believe that our community leaders, co-workers and supervisors can so deeply betray our trust and intentionally cause us harm.
However, South Africans seem to be reaching the tipping point of their tolerance of these types of crimes, as there have been certain cases in which white collar criminals were held accountable for their defiance of the law (Venter, 2018).
To break this unhealthy cycle of acceptance, employers should educate themselves on the types of white collar crime and the warning signs of criminal behaviour.
Common Types of White Collar Crime
The ways in which white collar crime manifests in the organisational setting are well known. However, organisations need to broaden their definition of this behaviour – criminality often starts with subtle deviant behaviour.
The U.S. Chamber of Commerce (1996) estimates that:
- 75 per cent of all employees have stolen at least once from their employer and half of those steal repeatedly
- 30 per cent of fraud cases were committed by managerial staff
- One third of all business failures can be attributed to employee theft
- More than half of embezzlers are managers.
These statistics show that white collar crime is more common than we think, and includes ‘everyday’ deviant behaviours such as theft, misuse of an employer’s assets, time or ideas. What drives these deviant behaviours? Why do employees engage in crime and self-destructive misbehaviour?
Usually, white collar crime is opportunistic in nature. These are rational, calculating crimes, not crimes of passion. Defiant behaviour typically results from a coincidence of appropriate motivation and opportunity (Coleman, 1987), i.e., is there a ‘loophole’, and can I justify my actions? The table below shows the types of white collar crimes and academic research examples of the justification techniques used by these individuals (Coleman, 1987).
Wrongful or criminal deception intended to result in financial or personal gain
“Everyone else is doing it ”
Theft or misappropriation of funds placed in one’s trust or belonging to one’s employer
“I was not hurting anyone, so I thought it was ok. It might be illegal but it is not a crime if you do not hurt someone.”
Denial of harm
The practice of obtaining something, especially money, through force or threats
“The corporate world is like a jungle, I needed to do this to survive.”
Appeal to necessity
The concealment of the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses
“The company owes me.”
Perhaps the occurrence of white collar crime also results from differing degrees of conscientiousness and ethical standards (Khan, 2018). In other words, employees have different beliefs about acceptable standards of work, ways of doing their work and what is considered ethical in their work. Therefore, ambiguity in the organisation regarding acceptable standards of work and ethics can nudge individuals down the slippery path of ethical transgressions leading to criminal acts (Khan, 2018). So, the role of the organisation is central to combatting white collar crime.
How to Prevent White Collar Crime
Small business owners and large corporations work tirelessly towards keeping their businesses afloat, by constantly procuring investments or personally investing in their business, with the hope that someday their hard work will pay off with financial security into their future. Being catapulted into bankruptcy by employee theft is probably the last thought on a business owner’s mind. Employers pour their blood, sweat and tears into their businesses, never thinking that it could end in loss.
As mentioned earlier, most cases of theft and fraud arise from an individual seeing an opportunity due to a loophole in internal processes, not necessarily due to premeditation. So, one solution is to remove the opportunity. Here are a few ways NOVA can limit, if not remove, the risk:
- Integrity testing during selection can help to ensure that individuals with high personal ethical standards are selected for executive positions
- Conduct a payroll fraud risk assessment to understand your exposure
- Ensure you have certain checks in place in your payroll system: upon each monthly payroll run, a complete headcount is submitted by departmental heads/managers and the headcount is then reconciled with your payroll figures
- Have a solid disciplinary procedure in place
- Adopt a code of conduct, which will instil integrity in your organisation and encourage employees to work ethically
- The final pay run must be authorised by a senior person, and at least two people need to sign off on the pay run
- All financial transactions must have at least two seniors signing off on them
- Segregation of duties – ensure that one individual does not have end-to-end financial control of any function
- Ensure proper checking of all financial claims and reimbursements
- If your operations allow, use only EFT (electronic funds transfer) as a form of payment
Red Flag Behaviour
Employers are normally tipped off about crime by other employees or by certain behavioural traits displayed by guilty employees. Brad Sadler, a speaker on white collar crime, who spent four years in prison for fraud and corruption, warns us to take note of the following red flags:
- High personal debt
- A gambling habit
- A drug or alcohol problem
- Peer pressure to succeed
- Feelings of being overworked and underpaid among employees
- Employees feeling insufficiently recognised in their job
- A close association or relationship with suppliers
- A wheeler-dealer attitude
- A desire to beat the system
- An employee never taking leave – this may be due to the risk of exposure when someone else takes over
The Impact on Your Business
The consequences of unethical and criminal workplace conduct are far reaching and will have a financial impact on your business.
As your HR business partner, we urge you to trust your gut instinct and to investigate suspicions of unethical employee conduct. It’s your business, and NOVA will guide you though the process to ensure proper risk mitigation and legal compliance.
Article “A losing battle?” by Trevor Budhram and Nicolaas Geldenhuys