White collar crime

Fraud a risk for board directors

Corruption rubbishes proper decision-making
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South African directors, sitting on multiple boards, risk huge exposure to corporate fraud, making governance tools and aids a necessity in their daily business practice.

Recent research from Inoxico, an online credit bureau specialising in risk management solutions, shows that each director of the 20 largest companies in South Africa holds on average 14 other external directorships.

The ability of these directors to make unbiased decisions in the best interest of the organisation they work for can be reduced when looking after multiple interests.

“The biggest concern our clients express on discovering that their directors are involved in several other businesses is the ability to prove transparent decision making, a key requirement in the New Companies Act, as well King III,” says André Stürmer, CEO of Inoxico.

“With fiduciary duties and governance requirements becoming increasingly onerous, our clients are applying governance tools not only to protect the best interest of the business, but also to protect their directors”.

Inoxico has introduced Association Matrix, a business intelligence application that allows companies to track and audit both company and individual associated relationships within their organisational ecosystem.

Companies face requirements within the New Companies Act for governance related to employees and directors involved with or associated to companies and entities within its supply chain.

While the relationships are not always indicative of fraudulent or non-compliant activity, the organization must take action where appropriate, and apply a measure of governance to ensure that areas of association are represented and that sound audit processes are in place.

Association Matrix provides both the platform to build and represent the associated structure within the business as well as the commensurate tools to create the investigative and forensic framework for reviewing any peculiar or unfavourable employee and director activity.

“Decisions made at director level can have a major impact on the course of the business, and if the director had a series of other objectives in mind when making the decision, the potential for sub-optimal business decisions increases, e.g. by paying a premium for products or services based on the director’s relationship with suppliers he or she may have brought on board,” he says.

Even with the huge volumes of information available to companies through traditional background checks, it is easy to miss the associations a director may have outside of the company. 

“Information in and of itself does not provide an organisation with knowledge,” says Stürmer. “Governance requires knowledge and deep insight to facilitate mandated auditable decision making.”


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Issue 72