White-collar crime costs the country some R930 million a year, according to Gillian Wolman, Head of Litigation at Risk Benefit Solutions, an independent insurance and risk specialist. According to PWC’s Global Economic Crime Survey 2014, the highest levels of economic crime are reported from Africa (50%) and North America (41%).
And the losses can be substantial: 18% of organisations suffering fraud lost between $1 million and $100 million. Losses are more than monetary and can include lost business, depressed stock prices, declining productivity and morale—not forgetting a damaged reputation with customers and regulators.
Another major factor is that white-collar crimes are notoriously difficult to prosecute.
Most commentators expect the rate of white-collar crime here to rise in future, particularly given the financial pressures that most South Africans face.
The inescapable conclusion? Prevention really is better than cure.
That was the thinking behind research by GIBS MBA student Luigi Muto. Muto set out to investigate what motivated people convicted of white-collar crimes in order to give business the information needed to tackle the problem proactively. The research and its conclusions have been published in an article co-authored with GIBS faculty member, Dr Gavin Price.
Based on this research, Muto and Price believe there are four key principles that will help companies prevent this sort of crime from happening.
Gordon Gecko rides again
First, though, it’s important to understand the criminals’ motivations. Muto interviewed 13 men and 16 women who were serving time for misappropriation of funds. Most were employed in a financial capacity, and 80% of them were linked to criminal syndicates.
It’s clear from his analysis that what motivated these criminals was a complex interplay between need, greed and race. Need covers those who turned to crime to meet ongoing expenses, often related to single parenthood or an addicted partner, while greed covers those who aspired to a better lifestyle. Very often, some who were initially motivated by need continued to steal even after the financial pressures had receded as greed took over.
Race emerged as a surprising additional motivator, but always in conjunction with need or greed. It is typically used to justify criminal activity; blacks whose families suffered under apartheid, and whites thwarted by affirmative action, use it to justify criminal activities.
While the racial angle may be a uniquely South African complication, global research shows that justification plays a huge role in giving people “permission” to commit crime. The tendency to shift blame seems to be universal, with many using the circumstances in which they find themselves to present themselves as victims rather than perpetrators.
“Most people use their particular circumstances to bring their actions into line with their own ethical standards,” Muto explains. “One of the things employers can do is to influence those circumstances to make resorting to crime less likely.”
Building dykes against the flood
Once motivation exists, the potential white-collar criminal needs to find a weakness to exploit. Many of the following principles are counters to those weaknesses.
Treat your employees fairly and build a culture of caring.
Creating a work environment that shows employees they are valued makes it harder for them to justify defrauding the company. Employees are also much more likely to ask for help when they face genuine hardships, such as medical or school costs—exactly the pressures that can cause internal ethical controls to be circumvented.
However, Muto warns, “If an employee comes to you for help and you turn him or her down, then you risk providing a real justification for crime.” By contrast, an employee who does receive help is likely to become extremely loyal.
Ensure governance protocols are in place, and enforced.
Muto’s research, backed up by international findings, emphasises the value of strong governance. Those who commit these crimes do so because they can. “Organisations in which managers delegate too much authority and fail to institute checks are those where white-collar crime flourishes,” he says.
There’s a complex dynamic at play here. Trust is essential in business, but it cannot be taken for granted. “The trusted employee should know that checks are in place, and it should be clearly communicated that they do not constitute a lack of trust but rather adherence to the principle of governance,” Muto says. “It must be understood that they are there to protect both parties.”
Then there’s drastic managerial oversight or laxness. Muto cites the case of employees registering all 10 of their fingers onto a biometric payroll system, and drawing multiple salaries—something the relevant manager has to be able to spot.
Eternal vigilance is needed, in other words!
A related governance lapse is insufficient separation between duties, something that could be driven by the financial pressures that companies face. To put it simply: as jobs are cut, roles that should stay separate are fulfilled by the same person—for example, the person drafting the tender also awards it.
“Many of those I spoke to suggested that employees’ responsibilities should be better matched to their roles, authority level and income,” Muto says. “They also identified the separation of roles as important in order to create structural barriers to crime.”
IT governance is also important, given the extent to which modern businesses rely on technology. A number of respondents said they installed malware on company systems to enable syndicates to access them.
Manage corporate ethics.
This is a principle of King III, and at its core is the requirement that companies and their managers actively promote the creation of an ethical culture. “Managers must be ethical, but they must also promote ethical behaviour amongst their subordinates. One aspect is that the business should work constructively with the internal audit team, which has good advice to give on identifying and preventing fraud,” Muto says. “In addition, research shows that when employees perceive management to be ethical, they are much more likely to notify them of any fraud that is occurring, or could be occurring.”
Educate the workforce.
Many of those currently serving time told Muto that if they had properly understood what constituted criminal action, and the consequences, they would not have done what they did. International research also concludes that highlighting the consequences of white-collar crime provides a valuable deterrent.
In conclusion, Muto says that it’s worth recognising that employees do face real pressures, and that need can make them act out of character. He believes employers should not underestimate the power of forgiveness. “Giving somebody a second chance can, in the right circumstances, create a model employee,” he argues. “Morality is always influenced by circumstance, and we should not forget our common humanity.”
 “White-collar crime a threat to SA businesses”, Finweek, 11 August 2015, available at http://finweek.com/2015/08/11/business-white-collar-crime-a-threat-to-sa-businesses/.
 Available at http://www.pwc.com/gx/en/economic-crime-survey/.
 Luigi Muto and Gavin Price, “An offender’s perspective of what motivates and deters white-collar criminals in the South African workplace”, South African Journal of Labour Relations 38(2), 2014, pp 1-13.