APPENDIX 4: LIST OF SCHEDULE 1 OFFENCES 270
8.3 INTERPRETATION, PRESENTATION AND ARTICULATION OF THE RESULTS
8.3.1 Results and Findings on the Causes of Employee Fraud
There is agreement amongst respondents that universities have been victims of employee fraud and that dishonesty is a trait of fraudsters who exploit their superior’s trust. There is significant agreement amongst the respondents about the causes of employee fraud at universities in KwaZulu-Natal. All respondents agree that:
.0 50.0 100.0
Executive management Senior management Unspecified 1 year 2 years 3 years 4 years >5 years Unspecified
Job Category Length of time in current position 32.3
66.2
1.5 15.4 16.9 27.7 6.2
32.3 1.5
Percentage
Greed is the motive of fraudsters;
Inadequate internal controls lead to employees committing fraud;
Poor ethical culture leads to employees committing fraud, and
Other factors lead to employees committing fraud.
Knowledgeable individuals who were interviewed during this study indicated significant agreement about the causes of employee fraud as outlined above. This implies that university management and knowledgeable individuals are in agreement to a significant extent about what causes employee fraud. A review of 12 fraud case files at one of the universities reveals that there are multiple causes of employee fraud. The significant causes are dishonesty, personal gain, collusion, circumvention of internal controls, non-compliance with policies and procedures, and poor internal controls. These results that are depicted in Figure 8.4 later in this section, indicate that there is corroboration between the views of the respondents and knowledgeable individuals; data collected from fraud case files indicate that dishonesty, personal gain and deficient controls led to the fraud.
8.3.1.1 Universities as Victims of Fraud
The respondents agree, to a significant extent, that universities in KwaZulu-Natal are victims of employee fraud. The result of this question correlates with the findings of the survey by PwC (2011:18), where 56% of perpetrators of fraud were employees of the company that they defrauded. To understand what causes employee fraud, there should be confirmation of the existence of fraud. This finding confirms that universities in KwaZulu-Natal have been defrauded by their employees.
8.3.1.2 Dishonesty
Respondents significantly agree that dishonesty is a distinguishing characteristic of fraudsters.
Dishonesty impacts on integrity and morality. Dishonesty also manifests itself when fraud is committed. The fraudster misrepresents material facts and deceives his/her employer in order to receive an undue benefit. This dishonest act results in the committing of a crime.
According to Albrecht and Schmoldt (1988:16), dishonesty is prevalent in society.
Universities are not immune to dishonest employees.
8.3.1.3 Exploitation of Trust
Fraudsters exploit their superior’s trust in order to commit fraud against their employer. There is significant agreement by the respondents to this question. In this regard, Albrecht (1998:111) holds that trustworthy employees should not be regarded as a control measure.
Cressey (1973:30) holds the view that trusted employees violate their employer’s trust when they have a financial difficulty. Consequently, employers should be aware that trusted employees are capable of committing fraud against them. Universities in KwaZulu-Natal in particular, and universities in general, should implement control measures to mitigate this type of risk.
8.3.1.4 Motive
The responses of the respondents reflect significant agreement with the statement that greed is the motive of the fraudsters. Jones and Jing (2011:859) and Wells (2001:89) concur that the motive to commit fraud is greed. Albrecht et al. (2006:33) holds that the motive (pressure) to commit fraud is linked to finances or vices such as addiction to alcohol, drugs and/or gambling. Work-related motive may be a disgruntled employee who is not considered for a promotion and intends for the fraud to be a form of retaliation against the employer. Another motive is trying to placate a family member by buying him/her gifts. Albrecht et al. (2006:33) aver that the motive of employees who commit fraud could be greed, living an unaffordable lifestyle or unplanned financial need. A review of the data collected from the fraud case files revealed that greed is the motive in all the cases. The fraudsters were employed in positions within the organisation and were paid a salary for their services. They committed fraud to enrich themselves. Universities should consider the motives of fraudsters, especially greed, when designing and implementing fraud prevention strategies.
8.3.1.5 Inadequate Internal Controls
Internal controls are widely regarded by organisations as a fraud prevention measure.
Respondents agree significantly that inadequate internal controls lead to employees committing fraud. According to the IIA (2009:19), an organisation cannot eradicate fraud because of the cost of implementing fraud prevention internal controls. Employers should consider reviewing current fraud prevention internal controls and ensure that these are adequate and functioning as intended.
8.3.1.6 Poor Ethical Culture
The response to this question shows that there is significant agreement by the respondents that a poor ethical culture exists at universities in KwaZulu-Natal. This poor ethical culture leads to employees committing fraud against their universities. According to COSO (2013:12), organisations should advocate integrity and sound ethical values. Management and the board of directors should set a sound ethical tone at the top (lead by example), design and implement a code of conduct, and monitor and measure compliance with this code during employee performance reviews.
8.3.1.7 Figures and Table Depicting the Causes of Employee Fraud
There is significant agreement from the respondents about the causes of employee fraud at universities in KwaZulu-Natal. Knowledge about the causes of employee fraud should be used by universities when amending or designing their fraud prevention strategies. Figure 8.3 below depicts the results which indicate that the scores are above the mean for all seven questions in this section:
Figure 8.3: Mean results about the causes of employee fraud
Table 8.1 below reflects the results of the One-sample t-test analysis on the causes of employee fraud at universities in KwaZulu-Natal:
3.94
4.29 4.23 4.22
3.85 4.13
3.70
1 2 3 4 5
B1 I believe that the university has been a victim
of fraud committed by
employees since 2013.
B2 I believe that dishonesty is
a trait of fraudsters.
B3 I believe that fraudsters exploited
their superior’s
trust.
B4 I believe that greed
was the motive of the
fraudsters.
B5 I believe that inadequate
internal controls led to employees
committing fraud.
B6 I believe that poor
ethical culture led to
employees committing
fraud.
B7 I believe that other factors led to
employees committing
fraud.
Neutral score Average agreement score
Average agreement score
Table 8.1: Results from One-sample t-test analysis on the causes of employee fraud
Question Result of Analysis One-sample t-test
B1 Significant agreement (t (63) = 6.505, p<.0005, M = 3.94, SD = 1.153) B2 Significant agreement (t (62) = 11.496, p<.0005, M = 4.29, SD = .888) B3 Significant agreement (t (61) = 11.796, p<.0005, M = 4.23, SD = .818) B4 Significant agreement (t (62) = 12.932, p<.0005, M = 4.22, SD = .750) B5 Significant agreement (t (61) = 5.816, p<.0005, M = 3.85, SD = 1.157) B6 Significant agreement (t (62) = 9.676, p<.0005, M = 4.13, SD = .924) B7 Significant agreement (t (62) = 5.981, p<.0005, M = 3.70, SD = .927)
The results above reflect that there is significant agreement by the respondents to all seven questions in this section. The results emanating from the analysis of data collected from knowledgeable individuals similarly indicate significant agreement to all these seven questions.
An analysis was conducted of the data collated from fraud case files. Figure 8.4 below reflects the frequency distribution of themes relating to the causes of employee fraud which are identified from the fraud case files:
Figure 8.4: Causes of employee fraud extracted from fraud case files
Figure 8.4 above indicates that dishonest employees who commit fraud for personal gain will circumvent internal controls and/or not comply with university policies and procedures to commit fraud. In order to prevent fraud under such circumstances, it would require continuous
0 5 10 15
Causes of Employee Fraud
Frequency
management oversight over operations which will be essential to identify any deficient internal controls and take corrective action to enhance them.
Respondents and knowledgeable individuals concur that the poor ethical culture prevailing at universities contributed towards employees committing fraud. There is also significant agreement from the respondents and knowledgeable individuals that fraudsters exploit the trust of their superiors to commit fraud. This implies that there are dishonest employees who breach the trust placed on them by their superiors in order to commit fraud. It is essential that universities in KwaZulu-Natal inculcate a sound ethical culture which will dissuade employees from committing fraud.
8.3.1.8 Bivariate Analysis
The statistician conducted bivariate analysis on the following two questions:
B6 I believe that poor ethical culture led to employees committing fraud.
D10 Management is responsible for preventing fraud at the university.
There is a strong positive correlation between these two questions (r = 0.370, p=.005). Those who agree that management is responsible for preventing fraud at the university, also agree that poor ethical culture led to employees committing fraud. Management at universities should strongly consider addressing the poor ethical culture among employees as this should form an integral part of the fraud prevention strategy.
8.3.1.9 Themes Relating to Deficient Internal Controls
Thematic analysis was conducted on question F4, which was intended to ascertain which internal controls are found to be deficient and provide the opportunity for fraud to be committed. The results indicate that the following deficient internal controls are significant contributors to providing the opportunity for fraud to be committed by employees:
Non-compliance with policies and procedures, and
Lack of management oversight.
The knowledgeable individuals hold a similar view that the internal controls which are found to be deficient and provide the opportunity for fraud to be committed, are non-compliance with policies and procedures as well as a lack of management oversight.
The review of fraud case files revealed that there are two specific reasons why existing internal controls are rendered deficient. These are due to the dishonesty of the employees as well as collusion between employees and/or external parties.
This finding implies that respondents are of the view that policies and procedures exist within universities in KwaZulu-Natal; however, employees are not complying with them due to dishonesty and collusion among employees and external parties. The respondents also responded that management do not provide oversight over operations at the universities.
When these two themes are jointly considered, there may be a correlation that employees are not complying with policies and procedures because there is a lack of management oversight.
Employees may be aware of the lack of management oversight and therefore do not comply with policies and procedures. Policies and procedures are a type of internal control that is implemented by universities in KwaZulu-Natal to prevent fraud. Universities should ensure that there is compliance by enhancing management oversight over operations.
Figure 8.5 below shows the frequency distribution of six different themes of deficient internal controls that emerge after thematic analysis of this question (F4):
Figure 8.5: Themes relating to deficient internal controls
0 2 4 6 8 10 12 14 16 18 20
Non-compliance with policies and
procedures
Lack of management
oversight
Unknown Lack of
segregation of duties
Lack of training Lack of delegation of
authority Deficient Internal Controls
The figure above indicates that non-compliance with policies and procedures is the significant theme affecting the internal control environment of universities in KwaZulu-Natal and resulting in fraud.
Knowledgeable individuals were asked an open-ended question during the face-to-face interviews. They were asked whether they were able to provide any other causes of employee fraud. After analysis of their responses, two significant themes emerge. The themes are
‘Employee Motive’ and ‘Behaviour’.
With regard to the motive of the fraudsters, they responded that the employees:
Are living beyond their means;
Commit fraud out of necessity;
Are under personal financial pressure;
Have a dependency on dual income which ends due to termination of employment of their spouse, and
Are greedy.
Regarding employee behaviour, they expressed that the employees are:
Arrogant;
Negligent;
Incompetent, and
Submit falsified qualifications when they are employed.
This implies that the thorough vetting of prospective employees is essential in ensuring that universities do not employ personnel who have a propensity to commit fraud based on predisposed financial pressures, incompetence or falsified qualifications. According to Wolfe and Hermanson (2004:42), vetting and investigating or affirming the background of prospective employees will assist in understanding the capability of a person to commit fraud.