Niehaus sign of a bigger stink
CARL NIEHAUS’S predilection for spin makes it hard to believe anything he says, especially after he’s admitted to being less than reliable with other people’s money. The problem, warns one of his former employers in an unrelated report, is that workplace fraud is likely to worsen as the economic cycle turns for the worse.
Just how deep are Niehaus’s financial woes and just how much attention should managers be paying to the personal finances of their most trusted colleagues? Probably more than is comfortable in a collegial environment. We’re unlikely to learn just how bad the former ANC spin-doctor’s finances are without a forensic audit of his accounts, which may only happen if he’s prosecuted for his alleged numerous financial indiscretions. We do know what he’s admitted to; we also know he was happy to keep the truth of his audacious spending habits, his debt levels and fraudulent attempts at extricating himself from those positions as tightly under wraps as possible while defending the political reputations of his masters.
Had the matter not ever been aired, Niehaus and his political superiors – whom he claims had knowledge of his “habits” – would have been happy to let them be. After all, he was good at his job and a useful bloke to have on your side when the chips were down.
Could this happen in the corporate world? It most certainly could – and does.
However, a strict interpretation of the Prevention and Combating of Corrupt Activities Act 2004 should dissuade senior executives from covering up for one another. The Act makes it an offence for a person in authority to not report to the police allegations of fraud or corruption worth more than R100 000.
Certainly Niehaus appears to have left a trail of financial embarrassment in his wake, whether it was at Deloitte (where he was a partner), the Presidency, Rhema Church (where he served as CEO) and the Gauteng Economic Development Agency (GEDA, which he ran until trying to use his influence to garner support for his personal finances). The precise circumstances of his GEDA departure remain unclear, due to conflicting versions of how a letter in which Niehaus allegedly promised a company preferential treatment on the rental of Government buildings came to light.
A survey by Deloitte reveals that in uncertain economic times staff at companies tend to become more unsettled and concerned about their future. That’s when they become more inclined to take advantage of their position for their own financial gain.
Forensics firms report a spike in internal fraud and often what starts out as pilferage can escalate when not discovered early. “Often people fall on hard times and tell themselves they’re just borrowing it and will pay it back – but it escalates and they can’t get out of it,” says Steven Powell, head of forensics at Edward Nathan Sonnenbergs. “There are three elements to white-collar crime: pressure, opportunity and rationalisation,” he says.
Deloitte says companies need to become increasingly vigilant about fraud controls during an economic downturn. Temptation presents itself particularly to trusted, long-serving employees and, in particular, in an unmotivated workforce where jobs have been shed and an increased burden is carried by those who remain behind.
The audit firm says rather than cut back on internal checks and balances as a cost-saving measure, companies should increase their monitoring of fraud controls and test their effectiveness. In a detailed international study the firm found most instances of fraud occurred at consumer companies, such as retailers, followed by the technology, media and telecommunications sectors. The most common types of fraud were revenue recognition, manipulation of expenses and improper disclosures.
There’s also a warning for shareholders and regulators from another global audit firm, KPMG. It warned in a December 2008 report that various forms of corporate malfeasance come to the fore in times of economic distress. “In a volatile economic atmosphere – such as the one in which we currently exist – there’s an increased threat of ‘ black holes’ appearing in financial statements and accounts of business performance,” write the researchers. “History has shown that during times of commercial distress some management feel compelled, at any cost, to maintain share price or investor confidence, avoid breaching banking covenants and fraudulently seek new sources of funding – all in the name of preserving jobs, lifestyles and bonuses. Such behaviour can be toxic.”
Mike Savage, head of Ernst & Young’s Fraud Investigation and Dispute Services group, says: “Preventing fraud is far better than dealing with the consequences – and that’s why companies need to step up their efforts to fight fraud.” Savage adds executives should closely monitor employees living beyond their means, those that achieve results that appear out of line with expectations or anyone who shows a tolerance of wrongdoing.
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