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Press Offices > Underwriters & Managers

Camargue Underwriting Managers
Press Office Feature : SMEs Soft Targets for Commercial Crime

Company: Camargue Underwriting Managers
Author:Justin Keevy
Email:[email protected]
Posted:25 Nov 2015

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Commercial crime and employment practises liability cover should be purchased together

It is estimated that corporate fraud costs the South African economy R150Bn annually and in Africa – close on 50% of this fraud is perpetrated by employees.

With approximately 50% of organisations never recovering any losses suffered due to fraud – losses that have been put at an average of R400,000 – SMEs can be crippled by commercial crime committed against the organisation*.

According to Justin Keevy, Camargue Senior Underwriter for Commercial and Cyber Crime, small businesses rarely have sufficient security insurance for such crimes, which makes them an easy target for corporate fraud.

“For a small business, such a loss could require staff retrenchments and serious downscaling for the business to survive."

"More-so than with larger companies, small businesses are often unable to absorb commercial crime-related losses,” says Keevy.

“Organisations should consider their strategy for managing, mitigating and migrating commercial crime risks.  The consequence of not doing so could be the difference between staying in business and shutting shop.”

Adding to this Keevy says that at a minimum – risk management planning should include fraud risk surveys that provide an overview of the key risks faced by the business from a fraudster’s perspective.

“Fraud risk surveys must provide a high level overview of the business’s key risks from a fraud perspective, focusing on controls and procedures from a monetary and/or stock perspective, as well as the provision of recommendations as to how to rectify loopholes and advice on best industry and business practice,” says Keevy.

As businesses expand, they are more at risk of corporate fraud and the risk management of the business should be continually assessed and updated. This is not a once off process but an ongoing and integral part of risk management.

“Organisations should also assess how staff are motivated to report any suspicious crime related behaviour and put systems in place for whistleblowing."

"The best results are achieved when staff can report anonymously and by employing the services of a third-party, this can be achieved without danger to staff being labelled a snitch."

"The success of such initiatives is further strengthened using incentives and rewards and it’s not uncommon for pay-outs of up to R25,000 to be offered by the insurance company for useful information that leads to an arrest for example,” says Keevy. 

“It goes without saying that the manner this information is communicated to staff is as important as the system in place.”

Keevy also believes that because SMEs don’t as a rule have access to in-house legal teams, and consulting lawyers can be prohibitive, they should consider signing up with a company that has a risk management hotline for free telephonic advice on how to manage business risk from a fraud-perspective.

The impact of commercial fraud perpetrated by employees goes beyond the incident losses themselves, with potentially costly labour implications.

Due to the employee being unable to work during the investigation, they are an unproductive resource for the company and a big loss for a small business who is unlikely to be in apposition to hire temporary help.

Should the judgement be in favour of the employee accused of the fraud following an unfair dismissal, the average pay-out at the CCMA is 3.9 months. Courts may even award as much as 24 months’ salary to the aggrieved employee.

“In South Africa there are over 200 000 unfair dismissal disputes every year – roughly 800 per day and more than 50% of these disputes are awarded in favour of the employee." 

"With an average loss of R25 000 and 20 productive hours per employer, per case, the reality is, any company that has employees needs Employment Practices Liability (“EPL”) cover,” says Keevy.

In addition to preventative risk management steps – there are various forms of insurance which will cover losses to the insured business as a result of employee dishonesty, computer fraud, fraudulent transfer instructions, extortion and contractual penalties; insurable losses are migrated to the insurance policy.  

“Commercial crime and employment practises liability cover should be purchased together for the best corporate safety net."

"Not putting this kind of insurance in place is tantamount to poor governance by the business owner, when considering the reach and impact of the losses associated with commercial fraud,” says Keevy.

*Source: 2012 Report on Corporate Fraud

Justin Keevy is Senior Underwriter, Commercial and Cyber Crime Division

Contact your broker for advice or visit www.camargueum.co.za or find us on Facebook.

Camargue is an underwriter of niche insurance products and a provider of risk management solutions to a broad spectrum of industries in Southern Africa. Camargue’s unique M3 approach focuses on managing, mitigating and migrating critical business risks. 


 

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