Invest in people to help prevent fraud, compliance failures

B7: Please provide some insight into your current role at PwC, as well as your area of expertise.

HH: I am the advisory and risk assurance leader for PwC in Namibia, with the last 23 years working in the professional services firm environment. Shortly, after qualifying as a chartered accountant in 2001, I became involved in forensic accounting investigations and risk assurance consulting.

This provided me with the opportunity to work on various investigations across the African continent for multinational clients, with specific focus on corruption, bribery, procurement fraud, as well as allegations of gross mismanagement.

Our team comprises of forensic accounting specialists with experience and professional qualifications in the legal, accounting and forensic technology environment.

Among others, we provide litigation support services whereby we assist clients and their legal counsel during legal proceedings with quantification of damages and loss of profit claims, quantification of losses as a result of various frauds, as well as critical reviews of opposing expert accountant reports.

We also assist clients with investigations into procurement and tender fraud, financial mismanagement and violations of the Companies Act, including reckless trading, fraudulent financial accounting, misappropriation of company funds and assets by senior executives and other internal/external parties.

B7: What are the requirements to qualify as a forensic accountant?

HH: The entry requirements to enrol as a student in forensic accounting are similar to those of an accounting student. In addition to providing bursaries to study in this field, we offer grade 11 scholars with an opportunity to spend a few days with our team in order to have a better insight into what the day in the life of a forensic accountant entails.

B7: How has the landscape with regards to fraud and corruption changed over the last few years in Namibia?

HH: Apart from fraudsters becoming more sophisticated, especially in the area of cyber crime, stakeholder requirements have changed drastically as well.

All stakeholders affected by fraud and corruption understand much better how these crimes impact their lives, hence the expectations regarding transparency and the enforcement of the rule of law has increased significantly.

Whether it is a private or public institution, how the leadership responds to a fraud or compliance breach will be as significant as the event itself. I see this as an important development as it will force the organisation to act responsibly, especially with the spotlight that social media and public opinion shine on those events.

B7: Does the current economic climate elevate fraud risk and if so, in what area would this be the most prevalent?

HH: The current economic climate results in significant additional financial pressure on employees, suppliers, customers and other role players in the organisational environment.

We therefore identify an increase in fraud committed by suppliers and customers in collusion with employees with a (initial) motive to keep the business afloat. The latter usually occurs with initial noble intensions and manifests itself in for example tender fraud and other forms of corruption. Either way, the result is the same as a crime is committed.

In those instances, conduct of individuals is identified as the key risk.

B7: How can entities in Namibia face up to that challenge?

HH: Unlike operational vulnerabilities and external threats that can be managed by internal controls (assuming that the human factor in those controls always does what is right and expected) – conduct risk requires us to move away from the belief that management will always act ethical and in the best interest of the organisation.

This requires organisations to identify those areas most vulnerable to management override and collusion and to design controls that mitigate those aspects.

B7: What would you say are the key learnings from recent accounting scandals?

HH: Chief executives and their immediate subordinates are expected to have a clear view and full control over each aspect of the business and to ensure that the relevant information is shared with the board of directors. Therefore, if something goes wrong – the public, shareholders and increasingly the regulator hold senior executives and directors personally responsible.

Among others, this may result in the CEO taking primary responsibility for the organisation’s ethics and compliance programme and the entire C-Suite for adjusting risk profiles in line with changes in their business environment.

Whether this expectation is fair or not – any professional that accepts an appointment as senior executive or director of an entity should ensure they understand what is expected from them and the consequences for not delivering on those expectations, as they will no longer be able to use ignorance as an excuse.

B7: Based on your experience, what do you see as the most effective tool in preventing fraud?

HH: For both internal and external fraud prevention, the key focus should be on people.

I say this, because the origin of any fraud remains the result of firstly human motivation and only second to that, a situation conducive to commit fraud. The human motivation to commit fraud is driven initially by incentive or pressure, followed by an opportunity and finally a process of internal rationalisation.

Both incentive and rationalisation can be addressed by focusing fraud prevention efforts on the human aspect, with opportunity to commit fraud being countered by among others an effective internal control system.

The incentive to commit fraud can be reduced significantly by promoting a culture of openness, the right tone at the top as well as embedding whistleblower mechanisms that will flag early warning signs of potential problems in an organisation.

The most challenging aspect to address is rationalisation, as most individuals who commit fraud see it as a victimless crime. Rationalising fraudulent activity will become more difficult for individuals if they clearly understand what a fraudulent activity is and how the resulting financial loss impacts all stakeholders of an organisation.