Fungai Chimwamurombe and Bhekimpilo Mangena
Fraud is defined in the Criminal Law (Codification and Reform) Act, chapter 9:23 section 136 as an act of misrepresentation which has an intention to deceive another person, which if acted upon would result in prejudice or real risk of prejudice.
The crime attracts a penalty of a fine not exceeding level fourteen or twice the value of the proceeds from the fraudulent act and/or imprisonment not exceeding thirty five years; or both.
Business Fraud Overview
Businesses encounter fraud in various forms such as misappropriation, corruption, information and communication technology (ICT) schemes and data manipulation.
Misappropriation involves unauthorised use of business assets (including intangible assets) for personal use.
It can be identified as theft depending on the circumstances.
Corruption may happen in the form of kickbacks for contracts, gifts and/or entertainment beyond normal scope of business.
Cyber-attacks and data theft are common ICT fraudulent acts, which are now prominent due to e-commerce.
Manipulation of data may include fictitious financial results to stakeholders which may influence decisions.
Dealing with business fraud — The five senses approach.
Companies and institutions should have a way of dealing with fraud, be it prevention, detection and recovery.
Awareness and training based on a formal risk and governance framework is key for all employees, particularly those mandated to deal with risk and internal control systems.
The five senses approach may be critical in dealing with fraud in business.
- Touch — The sense of touch would help recognise changes in texture and/or how a physical product feels in one’s hand.
Ingredients in a manufacturing set-up may be misappropriated and/or substandard products made due to use of corruptly acquired low cost inputs.
Those charged with loss control and/or internal controls should be able to use the sense of touch to uncover fraudulent acts.
- Sight — There is a need to look for inconsistencies in invoices, records and reconciliations.
Red flags may also be in the form of delivery and/or despatch times for a particular supplier and/or customer, hence trend analysis is key to detect fraud.
A manager at a plant can just check to see where a new electric motor was installed and how the old one was disposed of, seeking to see actual things that may unearth misappropriation.
- Smell — A business environment should be synonymous with a particular scent especially in manufacturing companies.
One should be able to monitor changes in scent, maybe from the plant or from a certain finished product.
Any change in scent may have been caused by production system failure and/or use of substandard inputs due to fraudulent acts such as misappropriation and/or corruption.
- Hearing — Sounds of equipment and machines should be synonymous with a certain work procedure and any variation in sound coming out of a particular activity may be a signal of fraud.
A consistent pattern of sound should be known and any changes should be investigated.
- Taste — Food manufacturers’ and those in the hospitality sector may make use of taste to monitor and evaluate if there are instances of fraud.
Low cost products may be fraudulently acquired and used in preparing meals eventually affecting sales and/or revenue due to loss of clients.
Conclusion
The five senses approach is a practical tool which can be tailored for any business type.
Businesses should augment such action with proper risk and governance frameworks, internal control systems, internal auditing, periodical risk assessment and effective risk mitigation measures.
The law may deal with fraud but a business should have capacity to prevent, detect and recover from fraudulent acts.
The Companies and Other Business Entities Act chapter 24:31 (hereinafter ‘’the Act’’) provides remedies for fraud under section 62 which may affect both the entity and the individual(s) involved. Section 68 to 70 of the Act further provides for sanctions against entities and/or individual(s) who are involved in fraud hence the need for businesses to decisively deal with fraud as the risk may lead to liquidation of a business if unchecked.
Fungai Chimwamurombe is a registered legal practitioner and Senior Partner at Zenas Legal Practice and can be contacted at fungai@ zenaslegalpractice.com
Bhekimpilo Mangena is a registered Legal Practitioner, Public Accountant and a Business Consultant at Zenas Consulting (Pvt) Limited and can be contacted for feedback at bheki@zenasconsulting.co.zw
