To prove that an offence constitutes fraud it is necessary to show that a false representation was made (1) knowingly, (2) without belief in its truth, or (3) recklessly, without concern whether it was true or not. A contract based on fraud may be declared void at the option of the injured party.
In order to prove that an employee has committed fraud the employer must show that the employee committed the act for gain. However, such gain would not have to be confined to direct financial advantage. The fraud could be committed for the advantage of a friend or family member or could be a means towards gaining the perpetrator a job. For example, claiming false qualifications for a job would be fraudulent in the sense that the job applicant would be gaining employment based on a lie.
While fraud can occur at any level, it is at its most dangerous at the upper levels of the organisation. This is because senior employees:
- often have easier access to bigger amounts of money
- can cause great damage to customer relations
- can be in a better position to cover up irregularities, and
- are often trusted more than junior employees.
The employer’s strategy for combating employee fraud needs to be based on two broad approaches, namely, prevention and reaction. Prevention involves the principle of trusting nobody and the implementation of comprehensive safeguards. These could include measures such as video cameras and telephone conversation recordings, authority levels and procedures, access controls and auditing procedures amongst others.
Reaction involves taking seriously all reports or hints of irregularities, swift action and, above all, responding in a way that makes it clear that fraud will not be tolerated under any circumstances. Closing a blind eye to irregular acts of employees encourages dishonesty. Failure to discipline and dismiss the perpetrator will perpetuate the culture of dishonesty but failure to investigate and manage the incident properly can result in the dismissed employee being reinstated or being granted financial compensation for an unfair dismissal. That would mean that an employee who defrauded the employer of millions of rands could win hundreds of thousands of rands more from the employer simply because the employer failed to prove the employee’s guilt at the CCMA.
In the case of Vermaak vs Allied Amusement Eastern Cape (2002, 7 BALR 780), the CCMA awarded two employees 11 months compensation because the employer had failed to bring evidence that the constructively dismissed employees had committed fraud.
The above illustrates the urgent need for employers to make radical improvements to their employment processes and contracts, security arrangements, disciplinary procedures and labour law expertise.