APPENDIX 4: LIST OF SCHEDULE 1 OFFENCES 270
3.5 NATURE OF EMPLOYEE FRAUD
The seminal fraud triangle model remains regularly cited by researchers such as Wells (2001:89), Albrecht et al. (2006:33) and Coenen (2008:10), who are involved in the study of employee fraud globally. The fraud diamond and the new fraud diamond models seek to enhance the understanding of researchers and other role players in the fields of fraud prevention and detection. Both predators and accidental fraudsters pose a risk to organisations.
The fraud triangle model has evolved into the fraud diamond model, which posits the existence of four elements that a fraudster requires to perpetrate fraud. The fourth element of the fraud diamond model is “capability”. Wolfe and Hermanson (2004:38) hold that fraud is committed by a person who has the “the right capabilities” to commit fraud. An honest employee who is under financial pressure, who is able to rationalise the unlawful deed, and who has found a weakness (opportunity) in the internal control system would not commit fraud if she/he is a law-abiding citizen. The fraud triangle model does not take into consideration the capability of a potential fraudster. The view of KPMG (2013:7) that the element of capability is a sub- category of the element of opportunity is not supported because Cressey (1973:30) holds that there has to be deficient internal financial controls (opportunity) which the fraudster exploits in order to commit the fraud. A dishonest employee with the capability to commit fraud would take advantage of such an opportunity to commit fraud. An honest employee would not exploit that opportunity to commit fraud. It is essential to understand the element of capability in order to prevent fraud.
The major theoretical stance that underpins this study is based on these four elements of the fraud diamond model, which are pressure, opportunity, rationalisation and capability. The ability to identify fraudsters and how they operate will be of assistance in addressing employee fraud and prevention strategies at universities in KwaZulu-Natal. In this regard, it is imperative that a holistic approach be considered by universities in KwaZulu-Natal.
who asserts that embezzlement by an employee is an employee who steals company assets.
Various studies have found that fraud which is committed by employees against their employers is ubiquitous and escalating. The findings of an international survey on economic crimes, carried out by PwC (2011:18), show that a total of 56% of perpetrators of fraud were employees of a company. Employees committed fraud against their employers. KPMG (2013:2) found in a survey that employees who commit fraud against their employers are mostly members of senior management who are employed in either finance, operations, executive, sales or the marketing functions.
Deck (1985:52) draws attention to the concern about the increase in employee fraud within the private and public sectors, where an employee betrays the trust of a manager in order to commit the fraud. Etheridge (2012:42) is of the view that employee fraud is a worldwide problem. Accordingly, Scott (2001:16), asserts that employee fraud poses the greatest threat to an organisation than any other type of fraud.
Gill and Wells (2007:64) suggest that training should be provided to all employees about ethics and anti-fraud policies of an organisation. Seidman (2002:423) states that internal controls and audits will not totally eradicate fraud, unless people are virtuous. Employees need to be continually reminded to conduct business in an ethical manner. According to Bryan (2012:21), the tone set at the top, by senior management, is a critical component in preventing fraud committed by employees against their employers. The Committee of Sponsoring Organisations of the Treadway Commission (COSO; 2013:4) asserts that the board of directors and senior management have to set the tone at the top about the importance of internal controls as well as the ethical conduct of employees. Bryan (2012:22) also believes that executive management should bear in mind that every employee has the capability to commit fraud against their employers under certain circumstances.
Managers, leaders and executives have to adopt and constantly create awareness of the code of ethics of their organisation, according to Bryan (2012:22). Executives should lead by example in order to create an ethical culture that pervades the organisation and enables employees to prevent fraud in the workplace (Bryan 2012:22). The Councils of the universities in KwaZulu- Natal together with the relevant executive and senior management should consider the creation and implementation of a code of ethics for university employees. In this regard, an ethical
culture should be set by the leadership of the universities in order to lead by example when addressing employee fraud and prevention strategies at universities in KwaZulu-Natal.
The ACFE (2014:11) depicts the three main categories and sub-categories of employee fraud as a “Fraud Tree”. Figure 3.5 below reflects the Fraud Tree, which also briefly depicts how employee fraud is committed in each category and sub-category.
Figure 3.5: ACFE Fraud Tree
Source: ACFE (2014:11)
In the fraud tree, each identified sub-category contains its own inherent risks which have to be mitigated by adequate and appropriate measures aimed at preventing fraud from occurring. As organisations differ in the manner in which they operate, so too do the approaches and interventions that need to be implemented with the objective of preventing employee fraud.
The ACFE (2014:10) found that, despite the global advancements and evolution of technology and the business landscape, fraud schemes maintained a consistent pattern in the manner in which they were committed. Universities in KwaZulu-Natal should consider these consistent fraud patterns when devising strategies to manage fraud risks.