Many businesses think fraud won’t happen to them. But when it does, the damage is severe. The financial losses and harm to a company’s reputation can be devastating. South African organisations are especially at risk.
The cost of employee fraud is more than just lost money. It is also a loss of trust. Fraud can range from payroll scams to procurement kickbacks. Experts say proactive risk management is key. Fidelity insurance is a critical part of this defence.
Fidelity insurance protects businesses from financial losses caused by employee dishonesty. It covers everything from petty theft to major corruption. This is all within specific policy terms.
Ryno de Kock is the head of Distribution at PSG Insure.
He lists the most common types of employee fraud in South Africa
1. Theft of Cash or Stock
Many local businesses deal with physical goods. They often operate in high-crime areas. The chance to steal assets is high. This is especially true if inventory tracking or surveillance is weak.
2. Payroll Fraud
This includes creating “ghost” employees or inflating hours worked. It also includes paying a former employee after they leave. “This often happens when one person controls payroll,” de Kock says. “It can also occur when HR and finance roles are not separated.”
3. Procurement Fraud
Employees may work with vendors to inflate prices. They might approve fake invoices. They can also steer business to certain suppliers for a secret kickback.
4. Falsifying Records
Employees might change accounts to hide losses or theft. They sometimes do this to make the company’s finances look better. De Kock says this risk is higher when one person handles both records and approvals.
5. Expense Claim Abuse
Employees may inflate or fake claims for travel or supplies. Some see this as a minor crime. But de Kock warns these small acts add up to large losses. This is common where expense policies are not enforced.
How to Reduce the Risk
Businesses cannot remove all risk, but they can reduce it. Practical steps include:
- Implementing strong internal controls.
- Performing regular audits.
- Vetting new employees carefully.
- Watching data for unusual patterns.
- Creating a culture where staff can safely report suspicions.
The Financial Safety Net
Studies show companies lose about 5% of their revenue to employee fraud each year. South Africa has a high rate of organisational fraud. This makes fidelity insurance a essential defence.
Even the best-run businesses are at risk. The right amount of insurance coverage depends on staff levels, stock movement, and other factors.
De Kock stresses that structuring the insurance correctly is vital. “An experienced adviser can assess your risk,” he says. “They help determine the right cover level. They also ensure you can validate a future claim.”
Policies often require proof that the fraud gave the employee financial gain. They also require that the crime happened within a specific time.
De Kock concludes, “To protect your business from the inside out, speak to an adviser. They can also guide you on other relevant covers, like cyber insurance.”
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