Fraud - the ongoing effect

Fraud is a particularly fraught subject, not only is there the loss suffered by the business and the potential legal repercussions if it is client related information, it is also a seemingly personal attack on the business owner, and fair or not, it affects how others view the company that has been defrauded.

If it is not client information that is lost or if there is no way to get back what has been taken or you can retrieve the information without any further need for action, do you publicise or report the fraud?

The furore of voices that might instantly insist that you should, for a variety of reasons from revenge to teaching the person a lesson to setting an example for your other staff to the responsibility you might have to ensure the perpetrators don’t repeat it with someone else, are all perfectly valid.

But pause a moment and reflect on whether any of these is worth exposing yourself and your business to yet further damage.

There is some instinct in human nature that causes people to judge and blame the business that was defrauded. The facts of the individual case will be largely irrelevant to the people who hear of the fraud after a time – whether the loss was information, a trade secret, a client list, money or even stationery; whether the person was a secretary or janitor or account manager or senior partner – the business may become seen as less trustworthy and secure in the eyes of the public once they know.

This may be because they believe that the person who has committed the fraud has done so due to unjust circumstances or because they believe there must be something missing or lacking for the company to have “allowed” it to happen or that the company hasn’t taken the necessary steps to protect itself, and by extension its clients, against fraud. At the end of the day, the status of the business may well slip in the eyes of stakeholders, clients, potential clients and employees.

So again I ask, do you publicise or report the fraud?

The initial fraud has already cost you in one way or another, do you allow the defrauder to further tarnish your reputation and potentially lose current and future clients and investors and potentially even have future fraudsters see you as a target?

Or do you trust that reporting it and being transparent on the issue will lead others to see that you are doing the right thing, potentially protecting somebody else from the same experience and putting current and future fraudsters on alert? Perhaps there is no right answer and each case needs to be judged on its individual merits.

*As published in Accountancy South Africa magazine in July 2014