It is vital for South African businesses to take the right steps to protect their operations from potentiality catastrophic financial loss that can be incurred from fraudulent activities.
SMEs face the biggest risk of major loss from this threat.
The latest Association of Certified Fraud Examiners Report to the Nations shows that South African companies experience the highest level of fraud in sub-Saharan Africa, followed by Kenya in second place and Nigeria ranking third.
What is most alarming about this trend is that small businesses with less than 100 employees experienced the highest median losses of any organisation type, typically losing around R2.3-million when fraud occurs.
That is a blow that very few SMEs can recover from.
Fidelity insurance is a class of insurance that is designed to protect against losses resulting from fraud or theft by an employee.
A business must start by determining the right level of cover for their needs. Much like liability insurance, deciding how much fidelity insurance to buy can be a challenge.
A good adviser should be able to provide an estimate of how much cover to include in a policy. This will be based on factors like the company’s risk profile, number of staff, stock flow, and possible incentives to commit fraud.
Still, fidelity insurance on its own is not enough for a business to manage its risks. For example, insurers typically cannot pay out on claims where an instance of fraud has been going on for longer than two years, or where the fraud started well before the business bought its insurance.
One of the key requirements of a fidelity policy is that companies must institute and maintain mechanisms for checking and controlling accounting and clerical procedures, and business processes such as stock control.
No company is immune to fraud but combining good risk management with sufficient insurance should at least guarantee survival.
• Hellweg is CEO of Western National Insurance
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