In a previous article, we provided insights on putting together a working detection and prevention framework, highlighting it as the first step in safeguarding your business against corruption and fraud. This framework allows for continual assessment of all areas of your business and will ultimately enable your employees to make risk-based decisions and enjoy the 360-degree view of corruption risks that you have developed for them.

In this article, we consider how to go about a lifestyle assessment for an individual, whether it be an employee, supplier or customer.

The continuous monitoring of risk is a fundamental element of the Corporate Insights framework and applies to the screening of employees, suppliers and customers, before you employ or engage with them, and on an ongoing basis thereafter.

The need for this is obvious, the framework allows you to detect, identify and prevent the risk of things going wrong as you grow and expand your business. Key to this is identifying the risks. The Governance Institute based in the UK recommends that all companies employing effective risk management do so “on a continuous basis to keep track of changing risks” to satisfy the primary objectives of “identifying, assessing, monitoring and controlling risk”.

Identifying the risks

The framework used by Corporate Insights considers a number of tests or factors of information to be identified, collected and analysed to prepare a life-style analysis for an individual. Our online system considers a minimum of 27 different tests in a lifestyle assessment.

Below are the categories that make up the tests.

  • Identity documents:
    Ensure that the Identity Number that employees present to you is valid, issued to them and does not belong to someone else or someone who is deceased. The same test should be applied to spouses, family members and directors of your suppliers or customers. You should also verify that these identity numbers have not been implicated in a financial crime or the person has not been convicted of an offence.
  • Financial distress:
    Determine whether the person or company is in financial distress by considering their financial status, levels of expenditure or they have a financial judgement against them. Do not be explicit here, consider the value of the judgement and the time since it was issued, if a judgement exists, then it’s to determine whether it’s a relevant risk factor.
  • Financial irregularities:
    Movement of money during corrupt activities is one of the key things that investigators look for when tracing corrupt practices. People involved in corrupt practices do their level best to shield their transactions from scrutiny. Consider the risks to your business if an employee or business partner has a trend of moving large amounts of money between mortgage bonds, bank accounts or other financial instruments such as insurance policies etc.
  • Income that exceeds earnings:
    Corruption in the form of kickbacks could be paid into an employee’s bank account. Equally, employees may be earning income from sources that are a conflict of interest or a competitive business. By detecting and identifying income that is materially in excess of salaried earnings that has not been declared to you, could be a source of risk. A word of caution. People will have legitimate sources of additional income. You should factor these considerations into your framework. Examples of these areas could be non-executive directors, retired or semi-retired persons and consultants.
  • Spousal earnings:
    Financial risk indicators should be considered in conjunction with family earnings to ensure that you are not detecting false positives or genuine sources of additional income, such as from investments or independent directors’ fees. Equally, there are cases that have been discussed where business relationships and income was routed through family members or spouses. This can be an important area of consideration when you are looking for elements of collusion.
  • Mobile phones:
    Flag employees with unusually large numbers of mobile phones connected to their names. Determine if any of those mobile phones have been blacklisted or blocked by the mobile networks or if the number given is non-existent. Mobile phones are frequently used in the commission of financial crime and if a number or handset is blacklisted it is a leading indicator of risk.
  • Politically Exposed Persons:
    In the wake of the Guptas and State Capture,
    politically exposed persons (PEPs) have greater prominence in the South African business landscape. Although not all persons who are PEPs pose a risk to business, not knowing a person is a PEP could expose you to risk or disqualify you from trading with UK or US companies.
  • Social Media Activity:
    Social media activity today is pervasive. Significant numbers of employees have caused damage to their employers’ reputation, sometimes resulting in crisis and financial loss as a result of social media postings. Your risk detection system should be looking at risks from employees that post hate speech, racist comments, use of drugs or illegal substances and inappropriate comments. Equally social media connections to undeclared commercial interests, such as ‘side hustles’ that would give rise to a conflict of interest are sources of risk indicators. All social media activity, in the mainstream, poses subjective risks and should be evaluated against the contents of your social media policy provisions.
  • Undeclared commercial Interests:
    Undeclared commercial interests that result in a conflict of interest are considered leading indicators of risk. You should ensure that you compare these results with your declarations of interests and remove any results for deregistered companies etc, other than companies that were liquidated through a judicial order etc.

Assess the risks

Once you have identified your risks, you will need to categorise them into areas of lesser and greater risk. These are determined by identifying threats to your organisation as a result of corruption, estimating their likelihood and impact on your organisation.

The determination of the risk rating can be determined by simple mathematical.You may assign a low risk as a value of “1”, an extreme risk as a value of “5” and grades of risk in between as minor, moderate and high as intermediate values.

So, for example, you could categorise only extreme financial distress – those which have resulted in a financial judgement – as a ‘5’ and sufficient grounds to disqualify a person from future employment. Lesser elements of financial distress, meanwhile, may be viewed on a lower scale.

You should aggregate the risk scores for each category of risk to provide you with an overall risk score for the employee. By completing these risk scores across your organisation, you can build up a risk profile that spans your organisation by employee, by position, by department. Once you have determined a threshold of risk that you will tolerate, you can compare your risk profile to this threshold and set measurable changes that you wish to take, with surgical precision, to improve your risk profile.

Your improved risk profile can be used to reassure stakeholders, investors and customers that you have taken demonstrable steps to prevent the risk of corruption occurring in your operations. In fact, compared to companies or competitors or yours that do not take any steps to identify risk, you can confidently acclaim to be insusceptible to the risk of corruption in comparison.

Protect Yourself

Corporate Insights has developed a one-of-a-kind modular system that combines TransUnion’s big data universe with our own artificial intelligence and smart logic algorithms. It enables you to continually monitor, detect, act on, and prevent critical risks, both internally and externally.

The Corporate Insights system will allow you to protect your business from succumbing to the typical pitfalls that lead to corruption. It also comes with a host of additional benefits to ensure your company continues to operate optimally, free of the threat of corruption.

Click here to book a demonstration or call us today to find out how you can transform your business.

*Confidential information stays that way

All our products and services have been thoroughly evaluated by a global law firm, a recognised National Credit Act regulatory expert and TransUnion’s international and South African compliance and legal departments, to ensure that consent is properly obtained, and that the information received is well protected. Our system is fully compliant with POPIA, the National Credit Act plus we comply with TransUnion’s strict guidelines on data security and handling of personal information. In addition, we use block-chain to encrypt and secure our electronically signed contracts so that you can verify its integrity at any stage in the commercial process.