Fraud will sink us sooner than crime

With serious financial fraud exceeding South Africa's R350 billion annual gross domestic product, fraud was more likely to sink the local economy than escalating crime and violence, according to Gavin Searle, the managing director of Alexander Forbes Corporate Risk Services in KwaZulu Natal. Searle said yesterday this finding applied not only to large-scale commercial crime, where individual transactions ran into hundreds of millions of rands, but also to so-called "ordinary fraud". This too had increased dramatically, with the value of individual fraudulent transactions shooting up alarmingly. Searle's observations were based on statistics from the South African police for the first three months of 1996, 1997 and 1998.Between January and March 1996, 14 456 cases of fraud were reported valued at R734,9 million and, although this dropped by 3,1 percent to R709,4 million over the same period the following year, there was a 9,4 percent increase during the first three months of 1998 to R993,6 million. Between the first three months of 1997 and 1998, the average value per docket increased by 28 percent while the overall value of the cases reported was 40,1 percent higher.

Searle said the almost out-of-control fraud problem in South Africa had an interesting history. The value of "ordinary fraud" investigations grew from R1 billion in 1988 to R7 billion in 1991 and had increased almost exponentially every year. At the beginning of 1992, the commercial branch of the police reported 22 800 open case dockets of fraud, totalling R3,6 billion. At the same time, the Office for Serious Economic Offences (Osea) reported 35 cases, valued at around R2,3 billion. Together, these represented an increase of nearly 75 percent in the value of economic crime over the previous year. Since then the situation had deteriorated considerably. In 1996, the commercial branch reported 54 119 open cases valued at R21,1 billion, while Osea logged 33 cases on hand worth R8,5 billion.

According to the police, 42,1 percent of fraud cases came from Gauteng last year, followed by 16,3 percent from the Western Cape, 11 percent from the Eastern Cape and 7,6 percent from KwaZulu Natal. The problem many South African industrialists had discovered was that these crimes were not confined to South Africa. Syndicates with strong international links or members of powerful global syndicates were being identified. This supported warnings from investigators that this country, with its sophisticated financial systems, but overstretched policing resources, was seen as an ideal haven for money laundering.

Searle said South African companies should not feel isolated. In the United States, employees stole about $120 billion annually, with average cheque fraud amounting to $125 000 and the average bank robbery netting $3 200. It was estimated that, in 1995, cheque forgery and counterfeiting cost US business over $12,6 billion, while the combined figure for South Africa was a conservative "guesstimate" of R300 million.

Source: IoL