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It’s Time To Get Off The Coronacoaster – How Forensic Investigators Will Drive South Africa’s Economic Recovery

Tying The Tourniquet

The financial fallout from the Covid-19 pandemic has exposed the soft underbelly of organisations in ways that nothing else has ever done before.

We’re talking about the human factor.

Whenever we’re faced with a crisis, or we find ourselves in stressful and unfamiliar surroundings, we often do things we would never think of doing under normal circumstances.

Desperate times, as they say, call for desperate measures. And could you ever ask for a greater example of more desperate times than those we are currently experiencing?

The economic pressures faced right now by so many businesses – and indeed entire industries – is inspiring the kind of unethical behaviour we may never normally see in more prosperous and stable times.

Bruce Dubinsky, a prominent forensic accountant and Managing Director at Duff & Phelps, said, “Sometimes you find very bright people, well-intentioned people, and all of a sudden they find themselves at the top of that ski slope, and the skis are over the top of the hill, and then they’re going down that hill and they don’t know how to stop.”

Businesses already under extreme stress will feel the pressure even more keenly when quarterly reports are due and earning projections cannot possibly be met.

“Despite the market bounce back, seven months down the road, when earnings are released and companies can’t make their numbers, there are going to be issues,” says Dubinsky. “At the corporate level, the pressure is going to increase dramatically to cook the books.”

Fighting The Rise Of White-Collar Crime

Most financial experts agree, predicting that incidences of public sector fraud and white-collar crime are likely to increase after the pandemic.

As Johan van der Walt writes in an article for Business Live, “Exacerbated by a tightening in the provision of credit, the sombre GDP growth outlook, increased unemployment and general lack of liquidity, SA is likely to see increased white-collar criminal activity in the form of fraud and potentially money-laundering after the coronavirus.

“As part of their risk management strategies, companies will need to ensure they not only have the correct fraud management tools in place, but that they act on their fiduciary duty to their stakeholders to properly investigate instances of fraud and present prosecutable cases for remediation.”

There is no doubt that companies are under huge financial stress. Thousands of individuals face the threat of insolvency due to retrenchments, and entire sectors of the economy have been shut down for an extended period.

But no matter how sympathetic we may be to the root cause behind white collar crime committed as a result of being in desperate financial straits, fraud and corruption is still fraud and corruption.

Rooting out these crimes – and their perpetrators – will require extensive forensic investigation. In fact, forensic investigators are set to play a vital role in supporting South Africa’s economic recovery.

Of course, the importance of forensic investigators has always been appreciated. South Africa has no shortage of cases where funds have been misappropriated in both the private and public sectors. In fact, we ranked a dismal 44th out of 100 in Transparency International’s 2019 corruption perception index.

But the Covid-19 pandemic has made a bad situation even worse. If we hope to ever attract the kind of investment capital needed to get our economic situation back on a more stable path, we’re going to have to show potential investors that we are deadly serious about combatting corruption.

The Rising Role Of Forensic Investigators

One of the first task of the forensic teams involved will be to determine how much of a company’s downfall was brought on by the pandemic, and how much was as a result of fraud or mismanagement. They will work alongside liquidation teams to determine the cause of the insolvency, and whether any individuals can be held accountable.

Even those companies that have survived might need restructuring or business rescue plans to ensure they can continue trading in the next few, difficult months. A business rescuer needs an in-depth understanding of the company’s financial health. Forensic investigators can provide this insight.

“As SA focuses on the difficult task of reversing the downward economic trajectory, both public and private institutions should view the specialist skills of forensic practitioners not only as a tool to investigate once a financial crime has been committed, but as an essential part of the country’s recovery plan, preventing unnecessary leakage from an already stressed financial system and improving efficiencies in a post-coronavirus reality,” says van der Walt.