Fraud and corruption have reached such proportions in South Africa that almost all political leaders have declared it as public enemy number one.

Fraud may be defined as an intentional and unlawful misrepresentation to a third party, which may cause real or potential prejudice to such third party.

Corruption is the giving or receiving by any person (private or entity) of gratification (which does not have to be cash) in order to induce another person to act in a way that is improper in the performance of his/her duty. In short, corruption is constituted by an abuse of power for private gain.

Statutory Framework

In South Africa, legislation was promulgated to combat these crimes, such as The Prevention of Organized Crime Act, Act 121 of 1998 (POCA) and the Prevention and Combating of Corrupt Activities Act, Act 12 of 2004 (PCCAA).

POCA provides the involved authorities with certain remedies such as asset forfeiture, which allow for the seizure of the proceeds of crime.  PCCAA furthermore creates categories of corrupt activities and also enables the blacklisting of any company or person found guilty of corruption.

It is important to note that Section 34 of PCCAA obligates any person who knows or ought reasonably to know of any fraudulent or corrupt activity involving an amount of more than R100 000.00, to report this to the authorities. Failure to do so is a criminal offence and punishable with heavy penalties.  For example, the minimum sentence for any act as listed in the PCCAA where the value of the fraudulent or corrupt activity exceeds R500 000.00 is 15 years imprisonment.

Spotting the Crime

Fraud can take on many and varied forms and often occurs in financial departments.  A classic example is where an employee creates “ghost accounts” purporting to be for vendor payments, whilst being for their own benefit or the benefit of third parties.

Similarly, external fraud takes on many forms, including the interception of real invoices and fraudulent changing of the banking details, thereby ultimately leading to the vendor payment being received by a third party.

Discovery of such fraudulent transactions may be difficult indeed, unless effective payment procedures are deployed.

Corruption often occurs when clearances of some kind are required from appointed officials. Whilst examples are too numerous to list here, so-called facilitation payments is a common version of the crime. Facilitation payments are relatively small payments made to officials intended as an inducement to exercise their powers in a beneficial way.

What to do?

The adoption of a corruption and fraud policy should, ideally, enjoy the commitment of senior management and must be clearly communicated to the employees to ensure overall awareness of the policy and effective implementation thereof.

In general, a sound knowledge of the business and an acute awareness of the different forms in which these crimes may manifest, assist greatly in spotting anything untoward.  In short, it is good policy to investigate if something seems odd or out of place.

PSA members enjoy access to legal cost insurance policies at a specially discounted rate.  Benefits include cover for legal costs, telephonic legal advice and standard (non-personalized) legal documentation.  Interested members may contact Legalex at

0861 10 20 92, info@legalex.co.za or text your name and “PSA” to 44386.  More information is available at www.legalex.co.za, which also caters for the answering of queries.

Legalex (Pty) Ltd, registration number 2003/003715/07, is an authorized Financial Services Provider (FSP 5277) and underwritten by Guardrisk Insurance Company Limited (FSP   26/10/75).

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