Business risks and economic crimes

Deon du Plessis - Businesses of today constantly find themselves in a changing environment – be it from manual to automated systems, for example paper-based to digital, or working from the office to remote working - from local clients to international clients.

These changes have an impact on the business risks of an entity and also increase potential opportunities for misconduct.

A lack of internal controls may leave a business vulnerable and exposed to many business risks and most likely makes it easier for perpetrators to harm your business through various criminal activities, such as fraud or misappropriation of funds.

Apart from the potential financial losses that may be incurred through financial crime, it can also result in reputational damage that could have an impact on the willingness of other entities to be associated with that entity.

Considering the potential impact of financial crime, there is clearly a need for businesses to ensure that the risk for such actions to be committed against them is minimised as far as possible. This can either be done through controls aimed at preventing irregular transactions from being processed or by implementing detective controls that would flag such transactions at an early stage, to reduce its potential impacts.

UNIQUE SKILL SET

Regardless of which type of controls are preferred by a business, unique skill sets are required to ensure that these controls are effectively managed and adequately designed.

For example: For the detection of financial crimes many resources are required to analyse the current business environment, activities and risks present. For the prevention of financial crime, a thorough understanding and awareness of financial crime is needed throughout an organisation, as well as risks present in the specific business as well as know-how on how potential gaps can be closed.

In our economy, it is a reality that businesses often do not have the capacity to effectively address the above needs. In addition, also considering the inherent workings of financial crimes due to them being committed with the intent to deceive and hide the true nature of a transaction, it becomes a challenging task for businesses that are not equipped to manage these risks.

This is where the work of forensic accountants becomes important.

The word “forensic” means suitable for courts of justice. The term comes from the Latin term “forensis”, meaning “public” and “forum”.

ANALYTICAL

While a big part of forensic accounting is using analytical methods to investigate financial crime and compile a factual report that can be used in a court of law, there is another crucial part of the job - forensic accountants are equipped with analytical and technological skills, as well as knowledge of accounting practices, the law and the psychology behind the criminal’s thinking process.

By following an investigative approach, forensic accountants can easily identify risks associated with a certain business that can assist in developing proactive measures to prevent financial crime. During such a process, thought is also applied to the business’ environment, as well as the legal requirements applicable to the business with the aim of recommending effective and relevant controls that will protect your business.

In this changing world, it should be every business’ priority to protect themselves against fraud and corruption by identifying risks and shutting down opportunities for misconduct. By making use of a forensic accountant’s analytical skills and relevant experience, economic crime can be prevented in a proactive manner.

· Deon du Plessis is an associate in the forensic services department of PwC Namibia.