THE ROLE OF FORENSIC AND INVESTIGATIVE ACCOUNTANTS IN COMBATING WHITE COLLAR CRIME: BROAD OUTLINE

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Some five years ago, Steven Powell of ENS Forensics caused a stir when he argued in an article in the magazine “Without Prejudice”, that forensic work is handled better by lawyers.  This invited a torrent of comment to the contrary by other well known names in the industry.

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Forensic investigations have evolved beyond investigation of fraud and misconduct in keeping with the pace at which serious economic crimes are being committed and becoming more sophisticated.  The need arose some time ago for a wider range of specialist services by virtue of statutory and regulatory requirements as well as constantly evolving corporate governance responsibility required in both the public and government sector, not only to investigate alleged irregularities, but also to take steps necessary to prevent fraud and corruption and improve the ethical climate within organizations, Mr Johan Van der Walt from KPMG retaliated in a subsequent article.

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Van der Walt emphasized that the range of forensic assignments broadened from mere investigation of fraud into loss of profit determinations, claim verifications, quantum of damages and factual and legal asset tracing, freezing and forfeiture.  This resulted in the development of specialized forensic skills in the technology field as well as areas such as corporate intelligence, intellectual property violations , fraud Hotline, fraud risk management, fraud policies and response plans and the measurement of the ethical climate   The traditional investigative capability, Van der Walt rightly points out, which a particular individual may have demonstrated gave way to the multi- disciplinary experience and skills of the forensic team, representing a wide range of legal, accounting, technological, investigative and financial skills.

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The Forensic companies today are staffed with skilled individuals drawn from a variety of backgrounds and industry sectors to meet the very complex demands of the forensic client.  Each assignment will dictate the required skills and expertise to undertake a forensic investigation.  Each relevant discipline has its own place in the field of forensic investigations and clearly accountants will better understand complex financial transactions and who better to evaluate the evidence required to be let at a judicial forum and its admissibility than a lawyer?  Van der Walt correctly states that the mature forensic practice provides a full range of forensic services and balance is all important.

The title of Powell’s article actually reflects a very true situation in the sense that Forensic Accounting Services are no longer an “Exotic Avocation”.  Steven Harcourt-Cooke of Computer Forensic Services states that “Companies are tired of paying big fees to lawyers with no results.  Previously forensic firms were the last to be called in after a fraud has been committed, now they are the first, because one needs a variety of skills and especially Computer Forensic skills to get to the bottom of an investigation quickly.”

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As Powell stated, 10 years ago, forensics was considered the exotic avocation on the extreme fringes of the accounting profession.  Today it is very much mainstream with proliferating sub-disciplines such as forensic valuations, litigation and computer forensics.

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With white-collar crime reaching scary proportions forensic specialist are no longer being called in after the event but are engaged by companies to strengthen their internal risk control and fraud detection systems.  The difference over the last 10 to 15 years is not the number of fraud incidents but the scale thereof, e.g. Tannenhaum matter, Fidentia.

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King III on Corporate Governance has prompted stricter reporting requirements for companies and disclosure of fraud.  Forensic investigations involve a painstaking reconstruction of the paper and money trail, identifying the source and recipient of funds.  Once the evidence has been obtained, it must be able to stand up in the court.  “Courts don’t convict where there’s uncertainty, so the evidence must be strong”, says George Papadakis, former CEO of GFIA

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In an article entitled “Even the con artists are feeling the pinch”, by Marcia Klein in the Sunday Times of June 21 2009, she states that in SA white-collar crime has been relatively easy to perpetrate, but slow to punish   The average time to secure a conviction she states is about 5 to 6 years and sentences are lenient [examples].

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Klein quotes director Paul Winer from Werksmans as stating that a more serious approach to white-collar crime appears to have been adopted in the investigation of the Tannenbaum matter where all the institutions including the NPA the AFU SARS and the Reserve Bank are looking into the matter.  This however is nothing new, taking the Fidentia investigation as an example where the NPA, more specifically the DSO, worked hand in glove with GFIA, the Reserve bank, FSB, FIC, SARS, Curators and law enforcement agencies  abroad in investigating and bringing the perpetrators to court.  With the assistance of financial spider charts, analysis of banking records and transactions, a solid basis was laid in the forensic investigation for a myriad of charges to be brought against the accused, ranging from Fraud and Theft to Money Laundering, and a number of statutory offences inter alia contraventions of the Financial Intelligence Centre Act, No 38 of 2001, as well as the Income Tax Act, No 58 of 1962

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As regards sentencing considerable criticism has been leveled at lenient sentences imposed in serious fraud cases.  A welcome approach to sentencing white-collar criminals has been detected in our Specialized Commercial Crime Courts of late.  Forensic reports quantifying losses suffered by complainants have played an important role in aggravation of sentences and play an important role in plea bargaining.  Steven Goodwin had no choice in plea and sentence negotiations with the DSO but to accept a long term of effective imprisonment,  by virtue of the fact that the State could prove that 93 million had been laundered through his company accounts and moved abroad.  In the more recent De Grandhomme trial in Cape Town the accused, tried for the second time in a Trans-national Fraud matter, was sentenced to direct imprisonment of 30 years.

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In a recent article, “Prevention is better than Prosecution”, published in De Rebus October 2009, Advocate Jacqueline Fick of PWC an expert at risk management, states that the heart of cyber crime is all about illegally obtaining information, being the most valuable asset of any business or government department.  Yet we fail to protect it with the same vigour as we protect other assets such as money or property.  The focus should be on prevention rather than on the prosecution of cyber criminals.  Devoting time and resources to implement strategies to make it difficult for criminals to perpetrate their crimes within organizations is more efficient and cost effective than trying to catch them after the fact.

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As an organization’s most valuable asset, information, underpins every strategy, system and business objective, it is therefore critical to preserve its integrity in every form.  Achieving information assurance in an organization through the implementation of a defense in depth strategy is where the forensic companies can play an important role by managing information related risks in order to protect and defend information and information systems, by ensuring confidentiality, integrity, authentication, availability and non –repudiation.  This will ensure that the right users have access to the right information at the right time.

(Gagasi Radio Case, WP Rugby Case – ABSA cash focus system )

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Improved technology has led to improvement of forensic investigations as the use of new software packages can turn a task that used to take weeks or months into a matter of days or hours.

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There’s no doubt Papadakis has stated that “Forensics is regarded as the sexier side of accounting. It requires an instinct for investigation, a meticulous approach to data gathering, good interviewing skills and the ability to prepare cases capable of standing up in court.  It’s definitely not for those of timid disposition”.

Bruce G Morrison

GFIA Cape Town: 20 October 2009

Home affairs corruption 'endemic'

2009-09-15 17:12

Cape Town - Corruption is endemic at home affairs, deputy director-general Vusi Mkhize said on Tuesday.

He was responding to a question posed at a parliamentary media briefing on how widespread corruption was in his department.

"I think the issue of corruption... and the department has not shied away from the problem, it is just generally an endemic problem.

"[We] have... a situation where, constantly, throughout the years, it has become an entrenched culture to solicit bribes [and] to solicit any other untoward mechanisms," he told journalists.

Societal problem

The influence of criminal syndicates was a long-standing problem that the department was doing everything it could to root out, Mkhize said.

Society in general was suffering from moral decay and a "lack of concern about doing work honestly with integrity".

Home affairs officials were part of this society too, he said.

"It takes someone outside to grease the palm of someone inside the department."

Mkhize said there was a need for a "holistic approach" towards dealing with corruption.

"In a nutshell, we do have a challenge, but the impression is sometimes created [that] all home affairs officials are corrupt.

"This is really not true. We do have people who are corrupt, but there are [people who toil]... and do their work as honestly as possible," he said.

Business avoids crime spotlight

Johannesburg - The head of SA's commercial crime unit said this type of criminality remained under-reported, despite a 16% increase in cases opened during the South African Police Service's previous financial year.

"Many companies do not like involving the law in instances of corruption and fraud. They deal with cases internally and dismiss the guilty. This keeps them out of the public spotlight," said Advocate Chris Jordaan, commenting on crime statistics released on Tuesday. "

"A further cause for concern is that the increase in this type of crime is accompanied by an increase in the amounts involved."

Jordaan ascribed the 16% increased to the weak economy, which is forcing more and more people to seek other sources of income. He added the amounts involved are also rising. "Ten years ago when the unit was established, fraud cases of R1m were considered big," Jordaan said. These days a run-of-the-mill fraud case can easily involve more than R10m."

In 2008/09 the commercial crimes unit managed to get convictions in 1 408 cases. This was a 14.3% improvement on the previous financial year, but concern persists about the quality of the unit's service to the community.

According to the latest annual report from the National Prosecuting Authority, the average time it takes to finalise a case increased to 310 days in the past financial year. The target is 233.

Among the reasons are the fact that magistrates continually rotate, and the "lack of capacity among police investigators".

Sake24 understands that the application of the laws to combat commercial crime leaves much to be desired.

The Prevention and Combating of Corrupt Activities Act, No 12 of 2004, for instance, determines that a register must be kept of the name of any person or concern found guilty of a crime where contracts or tenders are involved.

The public should have access to this register via the National Treasury's website. However, since 2004 when the act came into force, not a single name has been entered into the register.

Thoraya Pandy, chief spokesperson for the Treasury, said this is not the fault of Treasury. "If someone is found guilty of such a crime, the court must issue an order for the details to be entered in the register. To date no court has yet issued such an order."

Pandy said Treasury has had several meetings with the Department of Justice and Constitutional Development and this department has emphasised that the legislation and its terms should be brought to the attention of national judges, magistrates and prosecutors.

The most recent meeting was on June 19 this year.

"The director-general of the Department again gave his assurance that all prosecutors would be made aware of the act and its provisions."

Sita admits fraud, corruption

Durban - There is fraud and corruption in IT purchasing within the State Information Technology Agency (Sita), the institution's acting chief executive said on Monday during the opening of a national conference on the industry.

"Today I want to talk frankly about something that is usually only whispered in corridors or on the golf course," declared Moses Mtimunye at the Govtech Conference which is being attended by several invited overseas guests.

Llewellyn Jones, the former Sita chief executive, suddenly resigned at the start of last year's conference.

At that time there were rumours that Jones, who had been recruited from the private sector for the position, had resigned because of a clash with a senior official who had seemingly interfered with the awarding of IT tenders.

Between 2003 and 2008 government purchased R10bn worth of IT services and products and "one could expect a lot of cheating in order to get hold of some of the pie," Mtimunye added.

In the past year disciplinary steps have been taken against 32 Sita staff members, and 73 complaints received. Criminal investigations are under way in three instances.

Research has shown that allegations of fraud and corruption arise from companies failing to win tenders, dissatisfied officials, a lack of leadership within Sita, mismanagement and ignorance about established procedures.

In a flash survey 80% of conference attendees said that IT purchases and corruption were linked.

"The whole situation is real. We cannot continue supporting this evil," Mtimunye declared.

Richard Baloyi, Minister for Public Service & Administration, says he will act decisively if mistakes are made or dubious decisions taken.

Nevertheless he made an appeal for Sita, IT officials in government and the private IT sector to cooperate, and not to "toss the baby out with the bathwater".

Mtimunye said a new policy was being drawn up that leaves virtually no room for gifts to officials. He also asked for an integrity agreement to be drafted which would become part of every contract.

He believes there is a mistaken impression that only officials are corrupt.

Mtimunye asked people to report fraud and corruption to the appropriate authorities and for Sita and the industry to work together in the best interests of the country's citizens.