There was "most definitely" a likelihood of an increase in internal company fraud in the economic downturn, Deloitte's Graham Dawes said on Tuesday.

Dawes, speaking at a conference of the Association of Certified Fraud Examiners, drew on a number of statistical "key indicators" to support his view, saying there had been a "radical upturn" in household debt recently, with households spending 80 percent of their disposable income to service their debt, leaving only 20 percent of income to live on.

Dawes said three factors were considered primary when looking into the prevalence of fraud: motive ('greed and need'), opportunity and rationalisation. Dawes said that, in an economic downturn, the need factor increased.

Similarly, potential rationalisations would increase. People would excuse their actions on the basis that they needed to pay school fees, bonds, and so forth.

People applied for debt relief

He said 7.4 million people in South Africa who had impaired debt — were more than two months behind on their payments — and that these were overwhelmingly employed people, raising the risk of fraud inside companies.

The number of people applying for debt relief to the regulator appointed in terms of the National Credit Act had also increased, with more than 9000 applications in June this year.

A large proportion were between the ages of 30 and 40 and were earning R150 000-R350 000 a year.

Combine this with recent inflation statistics — showing a "massive increase since 2004" — and increases in unemployment, and the picture was "pretty scary", said Dawes.

When people were retrenched, the risk increased because of the reduction in household income. Jobs were also usually shed in areas such as finance - which weakened the control environment.

He said to effectively combat fraud, companies needed to accept this reality and assess the fraud risk potential.

Once this has been done, companies should develop "mitigating controls" and increase monitoring efforts.

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