Warning about the backbone of South Africa’s economy

Ryan Mer, CEO of eftsure Africa, warned that South Africa’s logistics industry, the backbone of the economy, is threatened by internal fraud.

He said that even though external incidents like cargo theft usually seize headlines, the damage inflicted by employees who exploit their positions of trust can be equally, if not more, detrimental.

Mer explained that understanding the risk landscape of internal fraud and implementing robust countermeasures is vital to securing the future of this critical industry.

The logistics industry faces a high risk of internal fraud, particularly payment fraud because large sums of money are handled in various transactions. 

“Employees in finance departments with access to sensitive information may exploit this by submitting false expense claims, creating fictitious invoices, or manipulating financial records for personal gain,” he said.

“The complex and fast-paced nature of logistics operations further contributes to the risk, as the intricate supply chains and high transaction volumes make it easy for fraudulent activities to go unnoticed.”

However, Mer said that the susceptibility of the logistics industry extends beyond mere opportunity. 

“The increasing reliance on technology for managing inventory, processing transactions, and tracking shipments creates vulnerabilities that fraudsters can exploit,” he said.

“Weak cybersecurity measures, lack of awareness or internal controls can allow internal actors to manipulate systems, manipulate data, or even engage in identity theft and impersonation to facilitate fraudulent payments.”

Additionally, the constant movement of goods and the inherent trust required during handovers make the industry vulnerable to cargo theft, often linked to internal activities. 

“Collusion between employees and external parties and tampering with inventory records to facilitate theft are just some examples of how internal actors can exploit vulnerabilities in the system for personal gain,” Mer explained. 

South Africa has seen an increase in internal fraud over the last few years. 

Speaking with eNCA, CEO of forensic investigative services company CS Forensics Christo Snyman said employee fraud is very likely the most common form of financial fraud in South Africa.

“To put it into perspective, a study on 2,000 employee fraud cases around the world and over 400 in Southern Africa revealed any given business is losing around $117,000 per case (roughly R2 million), equating, on average, to about 5% of company revenue,” he said.

Internal fraud is not an insurmountable challenge, though.  

Snyman advised companies to conduct proper background checks, speak with previous employers, and perform credit checks to avoid these crimes. 

“Employee fraud is rampant everywhere, and it should be considered a pandemic.”

Mer also advised how companies can avoid internal fraud in the logistics industry specifically. 

“By proactively addressing vulnerabilities and implementing robust prevention measures, logistics companies can significantly mitigate their risk,” he said.

A multifaceted approach that strengthens internal controls through the segregation of duties is needed.

“This sees various aspects of a financial transaction being handled by different individuals to prevent any single employee from having total control over a process, which reduces the risk of manipulation,” he said.

“It is important to build a culture of integrity, centred on ethical conduct and open communication.”

This requires regular employee training on fraud prevention, highlighting the consequences of fraudulent activities, and promoting a safe environment for reporting suspicious activity.

Logistics companies should also be investing in the right technology, implementing robust cybersecurity measures and data encryption solutions. 

Additionally, regular penetration testing can help safeguard against cyber threats and data breaches that can facilitate internal fraud.

“Along with cybersecurity measures, it is necessary to prioritise regular monitoring through regular audits, both internal and external,” Mer added.

“This helps to detect anomalies and identify potential discrepancies.”