A 150 year prison term and 170-billion dollars in restitution: that was the penalty that befitted the greatest financial fraud in history. And yet we will forget about Bernie Madoff as easily as we have forgotten about most of the frauds in history. Maybe because it’s not something we really want to think about, not something we want to accept.

This is according to Grant Fisher, Internal Audit Associate Director for Moore Stephens Chartered Accountants (SA), who debunks some of the myths that we might choose to believe regarding fraud…

Myth 1: It won’t happen to us

"When you don’t believe that fraud can happen to you, you don’t bother putting in any preventive control methods and invariably become a victim," explains Fisher.

"A few weeks ago I fell victim to video contract fraud. Someone with rather poor taste had used my contract to watch a host of bad movies and depleted my contract in the process. This was made possible by the complete lack of internal controls in that small video shop: no membership card, no passwords, no ID required, etc.

"Instead of agreeing to reverse the fraudulent entries, the manager maintained stubbornly that such a thing had never happened in that shop before and that I must have let someone else use the contract and forgotten about it. The complete disbelief and naivety on the part of inexperienced staff is one of the reasons fraud can be perpetrated. You can also end up providing some atrocious customer service."

Myth 2: Our employees are honest

According to Fisher, this is probably the greatest myth of all. "Firstly, fraud can only be perpetrated by trusted employees — if you didn’t trust them you wouldn’t have given them any responsibilities in the first place!

Secondly, studies have shown that up to 80 percent of people will commit fraud given the right opportunity, the chance to get away with it and if they have some way of rationalising their behaviour to themselves."

"In my job as an internal auditor, I uncovered a fraud some years ago in which a lady was recycling petty cash invoices as a means to obtain two identical cash cheques with which to replenish her petty cash. All management and staff could tell me at the time was what a lovely person she was and how they would have expected it of anyone else before her!"

Myth 3: We have controls and procedures in place

"Yes. Controls and procedures are a good preventive measure to reduce the likelihood of fraud or other irregularities. But the truth is," says Fisher, "that even well designed systems have loopholes and well developed controls can still be bypassed when collusion is involved.

"What’s more, if the person perpetrating the fraud is at a high level in the organisation, circumventing controls may be a lot easier."

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