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No company is immune to fraud, but proper risk management and sufficient insurance should guarantee survival, says Western National Insurance. PICTURE: 123RF/OLIVIER LE MOAL
No company is immune to fraud, but proper risk management and sufficient insurance should guarantee survival, says Western National Insurance. PICTURE: 123RF/OLIVIER LE MOAL

Small and medium enterprises (SMEs) in SA experience the highest level of fraud in Sub-Saharan Africa, an alarming trend which more businesses need to be aware of, says Western National Insurance.

It is vital for SA businesses to take the right steps to protect their operations from potential catastrophic financial loss.

Jurgen Hellweg, CEO of Western National Insurance, says the latest Association of Certified Fraud Examiners’ “Report to the Nations” shows that SA companies are the hardest hit by fraud in Sub-Saharan Africa, followed by Kenya and Nigeria.

Hellweg says what’s most alarming about this trend is that small businesses with less than 100 employees experience the highest median losses of any organisation type.

“The report shows that companies with less than 100 employees typically lose about $150,000 (R2.3m) when fraud occurs. That is a blow few SMEs can recover from.”

He explains why having adequate fidelity insurance is crucial to the survival of one’s business.

“Fidelity insurance is a class of insurance designed to protect against losses resulting from fraud or theft by an employee. To put it more accurately, it covers the quantifiable direct financial losses that companies suffer if employees defraud them for personal gain.”

Hellweg says without insurance cover, stock theft or even low-level financial fraud could be financially crippling.

For example, Hellweg points to a recent claim handled by Western National Insurance.

“One of our clients became aware of a number of anomalies on his financial statements and stock sheets. After investigation, it was traced back to a manager who was pocketing cash in lieu of ‘returned’ stock. As a result, our client suffered a loss more than R700,000 over a two-year period, which the insurer settled,” says Hellweg.

“The discrepancies were not detected earlier due to the cancellation of stock-take operations during the Covid-19 lockdown period, but were eventually identified when the normal stock-take process was resumed.”

Hellweg advises companies to start by determining the right level of cover for their needs.

“Much like liability insurance, deciding how much fidelity insurance to buy can be a challenge. A good adviser should be able to provide an estimate of how much cover to include in a policy. This will be based on factors such as the company’s risk profile, number of staff, stock flow and possible incentives to commit fraud.”

Still, fidelity insurance on its own is not enough for a business to manage its risks.

“For example, insurers typically cannot pay out on claims where an instance of fraud has been going on for longer than two years, or where the fraud started before the business bought their insurance. Proper risk management is one of the basic requirements of any fidelity policy.”

Hellweg says putting the right controls in place to detect and stop fraud should be a priority.

“One of the main requirements of a fidelity policy is that companies must institute and maintain mechanisms for checking and controlling accounting and clerical procedures and business processes such as stock control,” he says.

Hellweg says that having these measures in place can decrease a company’s spend on fidelity insurance premiums, and allow the insurer to adequately cover any losses from cases that fall through the cracks.

“In the end, this is about protecting businesses from the threats that could close their doors for good. No company is immune to fraud, but combining good risk management with sufficient insurance should at least guarantee survival,” says Hellweg.

“This is where working closely with an adviser can be extremely beneficial as they have the skills to help clients assess their risks and secure the right level of cover. Discussing these risks with an adviser is the first step in securing the future sustainability of your company.”

This article was paid for by Western National Insurance. 

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