HOW TO DEAL WITH PUBLIC SECTOR FRAUD

FEATURE by Thulani Sibanda CFE, CFP

The media is abuzz with articles about embezzlement. Hardly a day passes by without hearing about bank tellers, cashier, bursars, messengers and clerks being fingered in embezzlement. It is not just done by people who are struggling financially, there are many Zimbabwean celebrities, lawyers and business executives who have been brought before the courts because of crossing the line that separates right from wrong. Any organisation is vulnerable and municipalities are not immune. So What Exactly is Embezzlement?

By definition embezzlement is the wrongful appropriation of money or property by a person to whom it has been lawfully entrusted. As pointed out, in most cases these people are accountants, cashiers, bursars, bank tellers or anyone in the organisation who is trusted to receive, safeguard and disburse money on behalf of the organisation.The basic elements of embezzlement can be broken down as follows:

The defendant / perpetrator took or converted,without the knowledge or consent of the owner, money or property, that was entrusted to them. Guess what, even if the boss has not paid you or is underpaying you, it is not a defence that you can use in the court of law. There is extreme pressure on most Zimbabweans to get money for school fees, rentals and food but stealing from your organisation will create more problems than solve them.

Red Flags Pointing Out That You Might Be A Victim Of Embezzlement Below are some red flags to look out for when you think your organisation is a victim of embezzlement:

If the organisation experiences an unusual bad debts write off be careful to check if the person in charge of money is not running a fraudulent scheme and they are using the bad debts to mask the looting. Massive debt write off like the ones carried out by government are not what is meant, although there is a possibility that some might have taken them as an opportunity to cover-up loopholes in the system

A change in lifestyle or a marked variation between their salary and lifestyle could indicate that your funds are being siphoned off. Although people can be creative and entrepreneurial and raise funds to buy cars and houses, it would be wise for organisations to suspend their belief and investigate when a worker suddenly develops a living standard above their earnings.

Also, the perpetrator might not record some sales. Some businesses are shutting down as a result of poor management. When you see diminishing cash or credit sales or only a small increase in the same, know that business is either low or you are a victim.

Ficticious purchases, unrecorded revenue, or employee pilferage can cause an inventory shortage which means that you have to be alert as an organisation by accounting for all stock whether in good condition or obsolete.

We are not saying that declines in profit or increases in expenses are not possible but they could also be hiding the fact that cash is being siphoned off. Slow collections of subscriptions can be a result of the current economic situation but, this can also be the tool being used by a fraudster.

How To Catch An Embezzler There are a number of steps that an organisation can implement in order to prevent loss of finances and property through embezzlement. Below is a list to help you begin fraud proofing your establishment. Implement these measures according to the setup of your organisation.

Job rotation - when different employees take turns to manage the company’s accounts. Book keeping personnel should be placed on a rotational system so that no one has the opportunity to implement a fraud scheme.

At the same time it would be wise to separate employee duties. For example the individual responsible for receiving cash and checks should not be responsible for the entries in the accounts receivable system. In other words make sure that no one person is handling the transaction from beginning to the end.

Likewise be mindful to exercise tight control over your accounting system, that is, the invoicing, purchase orders, customer credits etc, so as to avoid financial loss. Many schools and associations across the country have fallen victim to fraud schemes because there was a lax accounting system. It is not enough to put your trust on the character of a person, money has the capacity to amplify dormant human characteristics. Stories usually highlight the fact that the business owners or the organisation leaders will have put their total trust on the embezzler and feel betrayed by the fraudster’s actions.

Surprise audits which are done on the spot. Do not announce the audit because it will give the perpetrator of a scheme to cover their tracks. Surprise audits will deter the potential fraudster from attempting to steal because they know that their actions are under scrutiny and they can be caught at any time. Do not allow the bookkeepers to take their work home.

Most embezzlers take little or no vacation time, therefore mandatory leave for employees is also another effective way to make sure that your financial affairs are in order. Some frauds are uncovered when the person in charge of the accounting experiences some emergency that forces them to be out of action for some time such as sickness and death. So every organisation should make sure that staff members take their mandatory leave so that the system can be examined.

Embezzlement is a big problem, however, it does not need to bring your organisation to its knees. Take note of the above preventative measures and you will go a long way to preserving your wealth