South Africa marked the International Anti-Corruption Day on Monday December 9. The day is commemorated annually in recognition of the United Nations Convention against Corruption signed in Mexico in 2003. The country has some of the most skilled people in investigating cases of fraud and corruption but perpetrators continue to go unpunished as most cases are either not properly investigated or investigations never start. The Weekly’s Martin Makoni asked Stadler Group Chairman Bart Henderson how dire the fraud and corruption situation is in the country and how best it could be addressed. Excerpts:
Cases of fraud and corruption involving both the private and public sector continue to grab the headlines in South Africa, how would you describe the situation, how bad is it?
I think we have gone beyond crisis point. There are two stages of fraud and corruption. You have what we call endemic fraud, whereby fraud almost becomes a culture. Almost a habit. When I talk about culture, I mean corporate or organisational culture. So, when fraud permeates through your organisation, that’s when it becomes endemic. Then you have what’s called systemic fraud… when you look at Nigeria or Zimbabwe, they have both endemic and systemic fraud. In other words, the systems in those countries, eg, the legal, judicial systems and all the other processes have become so corrupted that the entire system is corrupted. My battle in South Africa when I started training was to prevent us from getting to where Zimbabwe is, but unfortunately, that’s where we are getting. We are almost there.
Won’t that be too harsh an indictment on South Africa, given that the country still has most of its systems in place and functional compared to Zimbabwe where the economy has virtually collapsed?
If you look at our balance of payments deficit and if you look at where we are sitting now with the country being devalued… going to junk status by the ratings agencies, that is almost a by-product of endemic and systemic fraud and corruption. It’s almost inevitable. So, that’s what we have to combat as a country and we have the means to do so as long as we are willing to do it.
But what has gone wrong, why can’t that situation be rescued before it gets any worse?
You see, that’s the thing. Once you get to systemic corruption, it becomes almost embedded. It becomes almost like an informal economy. There are so many people perpetrating it that it becomes almost impossible to stop it because people are getting used to ill-gotten gains. They enjoy getting something for nothing. If you get R3 billion to build a dam and you don’t build it, what’s the consequence? The responsible authorities might not do anything because they could have been involved in chowing (plundering) the funds.
So, is it the lack of consequences that you would have the situation continuing to worsen like you say?
Accountability, responsibility, consequences… all of those. It’s very important to recognise those factors if you seriously want to fight fraud and corruption effectively.
I want us to get into the psych of somebody involved in fraud and corruption, what are they thinking and what do they want to achieve when they deliberately break the law?
There is a pyramid drawn up to explain fraud and corruption. It has three main points: Greed, Need and Expectations. I have four legs to what causes it, namely: Greed, Opportunity, Need and Expectations. People have expectations. One would say I am underpaid, I am overworked, therefore I deserve to steal this money. I deserve to get myself an increase. There is a need, somebody is sick in the family… and we just can’t cope. I am on a minimum wage, I cannot cope, so we are going to start stealing from the employer. That’s a need or perceived need. And then there is opportunity. It’s there, the opportunity is there, so, chow. I mean the opportunity is there, there aren’t enough controls. There isn’t enough oversight. There is nothing to make the person afraid or that they get caught. And then there is just plain greed.
Where is fraud and corruption most serious in the South African economy, which positions make it easier for you to commit these crimes?
Fraud and corruption are mostly committed by those in positions of authority. Those in high places. A person sweeping the streets is very much unlikely to commit these crimes but the person who hires them may demand a bribe or they may be involved in other forms of fraud and corruption because of the power they command. Look, corruption in the higher levels depends on discretionary authority. That is your ability to give instructions. Where you sit in the hierarchy and the authorisation you can sign for. For example, how much authority do have in the procurement process, how much signing power do you have? That’s where your fraud and corruption will start. There is a saying: “In labour there is dignity whether you are a street sweeper or whatever it is. There is dignity in having a job. Your street sweeper is not going to commit fraud. They are actually the victims. The poor people in society across the board, are the victims of corruption.
If all the facts are known as you illustrate, why isn’t the problem being tackled head-on?
If you want to look and fraud and corruption, endemic and systemic in our country, why not look at the banks? Why not look at the auditors? No financial collapse after the Steinhoff case. There is no way that those guys committed that fraud without the involvement of auditors. It’s either the auditors were in a comma, or they were co-conspirators, or they were paid. End of story. It is not possible for such fraud and corruption to go undetected. The same could have happened with Worldcom, the biggest accounting scandal in the history of the United States as well as one of the biggest bankruptcies. Enron, the energy trading company that collapsed after a massive accounting fraud scheme was revealed, could not have happened by accident, either. Every single financial collapse in world history, your auditors and your accountants are involved either tacitly, overtly or through the massive fees they received. It is not possible to have these collapses unless there is complicity in those professions. The accountants, why aren’t we looking at them? If VBS has collapsed, why have we not charged the accountants with money laundering because surely they benefited from the proceeds of crime?
Can fraud and corruption be effectively combatted, does South Africa have the capacity to investigate and successfully prosecute such cases?
Absolutely. We have some of the best investigators in the world. We have the knowledge, skills, technology, digital solutions and business intelligence to virtually eradicate fraud from the workplace. We have got good training here. We just don’t have the will and it’s bad for business. Today, what started out as the last resort in fraud prevention and mitigation, the whistleblower, has emerged as the vanguard in our efforts. This is a stinging indictment of the value and efficacy of both the accounting and auditing professions.
So, at what stage within the value chain is the country lacking, is it at investigating or prosecuting stage?
The investigating capacity within the police and the NPA (National Prosecuting Authority) has been decimated. Most of the top investigators were frustrated and they left. Most went into private practice. So, we may not have enough investigating capacity within the police and the NPA, but we still have the capacity as a country. The police and the NPA will be the first to admit it.
So, what sort of capacity in terms of skills, do you think the police and the NPA need in order to pursue fraud and corruption successfully?
If you take the Hawks, for example, you want people holding Bachelor’s or even Master’s degrees in Accounting, you need people with auditing skills and you need specialists in fraud investigations. You need Chartered Accountants in the police. We are faced with a massive challenge now and we need to replace and retain these skills.