Employers possess comprehensive information regarding their employee’s compensation. However, knowledge of individual living standards is typically limited. It often happens that the only indication of illicit activities may be a sudden, unexplained shift in an employee’s lifestyle. Instances of fraud and corruption often transpire through off-book transactions or manipulated financial records, making them challenging to detect. This leaves room for employees to conceal their fraudulent activities easily and swiftly. Lifestyle audits bridge the gap and identify fraudulent activity.
The audit is a risk management activity, designed to detect risk of fraud, corruption and unethical conduct.
In the news recently as an outcome of the detailed and very public investigation into corruption that paved the way for criminal Thabo Bester to escape from prison, lifestyle audits serve as a crucial tool to identify staff members whose extravagant lifestyles could suggest involvement in illegal activities.
The Nitty Gritty of Lifestyle Audits
The National Credit Act, 34 of 2005, imposes strict regulations on the utilisation of credit information. However, Section 17(4)(b) explicitly permits the use of credit histories use for fraud prevention and detection services, making it accessible for lifestyle audits. Classified information is strictly off-limits during a lifestyle audit.
Obtaining personal financial information, cell phone records, or prior criminal history for lifestyle audits require either a subpoena, court order or the employee’s consent. In cases of suspected fraud, companies must register a criminal case based on reasonable suspicion. This will aid authorities in convincing a judge or magistrate to authorise the necessary subpoena.
What Catches The Eye of Forensic Auditors?
When conducting an in-depth lifestyle audit on an employee suspected of engaging in fraudulent or corrupt activities, the process is frequently referred to as suspect profiling or business intelligence gathering. Forensic auditors are particularly vigilant for signs of an extravagant lifestyle, such as properties or motor vehicles with monthly payments that surpass what the employee in question could reasonably afford.
The outcome of a lifestyle audit serves as a warning sign or hint that something might be off, but without additional evidence, it cannot be considered definitive proof of wrongdoing. Seemingly extravagant lifestyles may have perfectly reasonable explanations, such as an inheritance, a well-off partner, or financial support from family members unbeknownst to the employer. As a result, forensic auditors would approach the findings of a lifestyle audit with caution.
Fraudulent Activity on the Rise
The economic downturn brought on by the recession has led to a significant increase in fraudulent activities. Financial strains and uncertainties have created an environment where deception and misconduct are on the rise, impacting businesses and individuals alike. Lifestyle audits are a powerful indicator for gauging fraud risks within an organisation.
Businesses concerned about inviting fraudulent behaviours into the workplace should engage management consulting services to call on the benefits of conducting lifestyle audits to shield themselves from becoming potential victims of fraud. For more information about MMS Group can assist, please contact our team.
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