Red Flags and Right Choices: How Ethical Accountants Protect Profit and Reputation

13 Oct

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Fraud is not something that happens somewhere else. It happens inside real businesses, every day, in every town. South African organisations lose billions of rands each year to fraud, theft, and manipulation. For small and medium-sized practices, it can destroy a client’s livelihood or wipe out years of hard work.

For accountants in practice, this is not just an ethical issue. It is a business issue. The ability to detect red flags, prevent fraud, and guide clients toward stronger controls is one of the most valuable services you can offer. It protects their bottom line and enhances your own professional reputation.

Understanding Fraud in the Real World

Fraud is any intentional act that causes another party to lose money or value. It includes three main categories:

Financial Statement Fraud – manipulating the numbers to make a business appear healthier than it really is. This is what brought down companies like Steinhoff and Tongaat Hulett.
Asset Misappropriation – theft of cash, assets, or inventory through petty cash skimming, false invoices, or fake suppliers.
Corruption – the misuse of power for personal gain, such as kickbacks, bribes, or preferential treatment in tenders.

Fraud is not always complex. Most of it happens because someone feels financial pressure, spots an opportunity, and justifies their actions. In small businesses, where controls are weak and trust runs deep, these opportunities multiply.

Why Small Businesses Are Vulnerable

Fraudsters target small and medium-sized businesses because they are easier to exploit. In many companies, one person handles payroll, banking, supplier payments, and reconciliations. There are few checks and balances.

A construction company in Cape Town discovered too late that its long-serving administrator had stolen more than five million rand by creating fake suppliers. Nobody reviewed her work because “she had been with the company from the beginning.”

This is a familiar pattern. Many owners assume loyalty is a control. It is not. As an accountant in practice, you have the independent perspective to see where controls are missing and where trust has replaced verification.

Behavioural Red Flags That Signal Trouble

Fraudsters often reveal themselves long before the numbers do. Be alert to behavioural changes such as:

Living beyond their means – a sudden upgrade in lifestyle without an obvious increase in income.
Refusal to take leave – the employee who insists they are the only one who can do the work.
Secretive behaviour – defensive responses, avoiding questions, or resisting audits.
Changes in personality – a previously open employee who becomes withdrawn or aggressive.

These behaviours might seem minor, but combined with financial irregularities they point to risk. Fraud prevention is about noticing what others overlook.

Common Financial Warning Signs

Fraud always leaves evidence in the records. The key is knowing where to look.

Duplicate or round-sum invoices are a major clue. Fraudsters often submit identical invoices or create neat, rounded figures like R50 000 or R100 000 with no supporting detail.

Unusual journal entries near month-end or year-end should raise questions. Adjustments that increase profit or hide losses may indicate management manipulation.

Missing or altered documents are another warning sign. Invoices without delivery notes, handwritten receipts, or contracts that suddenly “cannot be found” often point to false transactions.

These patterns appear in every major case, from government departments to small family businesses. Once you know what to look for, they are impossible to ignore.

When Trust Becomes a Control Weakness

Trust is important in business, but it must be supported by systems. A Johannesburg engineering firm learned this lesson when its bookkeeper of more than a decade embezzled six million rand. She prepared, authorised, and reconciled payments herself. Nobody checked her work. When she went on sick leave, a colleague discovered strange supplier names and missing documents. Within weeks, the full scheme was exposed.

Fraud is rarely the result of intelligence. It thrives in environments where no one asks questions. Segregating duties, rotating responsibilities, and reviewing reconciliations are simple steps that prevent long-term damage.

Ethical Accountants Build Stronger Economies

Every control you help a client implement strengthens more than their business. It strengthens South Africa’s financial integrity and builds confidence in the profession. Ethical accountants contribute directly to economic growth by helping clients stay compliant, reducing waste, and improving governance.

When small businesses are clean and well-managed, they attract investors, create jobs, and pay taxes that fund infrastructure and services. This is how ethical practice translates into national impact.

Turning Fraud Prevention into a Service Offering

Fraud prevention is not only about doing the right thing. It can also be a profitable advisory service. Many clients assume their accountant’s role ends with tax submissions. They do not realise how much money weak controls are costing them.

You can add value by offering:

Fraud risk assessments for clients during annual reviews.
Internal control training for business owners and managers.
Surprise cash or stock counts to catch irregularities early.
Whistle-blower channels for staff to report suspicious activity.
Vendor master file reviews to detect fake suppliers or duplicate accounts.

These services protect clients and differentiate your practice. They demonstrate that you are not just processing figures; you are safeguarding their future.

Practical Tools That Strengthen Trust

Surprise audits and spot checks disrupt predictable routines and expose fraud that would otherwise stay hidden.
Benford’s Law can identify made-up numbers in invoices or expense claims. It works because real-world data follows a predictable pattern of digits.
Data analytics helps find duplicate payments, round-sum amounts, and recurring anomalies. Most accounting software already includes these functions.
Dual authorisation of payments ensures no single person can transfer money unchallenged.
Whistle-blower hotlines remain the most effective detection method, responsible for discovering nearly half of all corporate fraud worldwide.

You can help clients implement these controls without expensive systems. Most solutions are procedural, not technological.

Ethics as a Competitive Advantage

Ethical practice is good business. Clients stay loyal to accountants who protect their money and reputation. Lenders and investors prefer companies with clean governance. Staff stay longer when they see transparency and accountability.

For accountants, integrity is currency. When you build trust, you build your brand. Every red flag you identify and every control you strengthen demonstrates professionalism that sets you apart from competitors.

Fraud will always exist, but it does not have to exist in your clients’ businesses.

The Final Word

Fraud starts with one unethical decision and ends with lost jobs, damaged reputations, and broken trust. Accountants who recognise red flags and respond decisively protect more than the numbers; they protect livelihoods.

As a Business Accountant in Practice, you are in a unique position to influence how South Africa’s businesses operate. By combining technical knowledge with ethical courage, you help your clients make the right choices and build businesses that last.

Integrity is not a slogan. It is a service. And when you commit to it, it always pays off.

Join CIBA for a CPD here where we discuss the Red Flags on Fraud.

🎯 Red Flags & Right Choices: Fraud Prevention and Ethics That Pay Off
💡 Recording now available!

Did you miss the live session on 13 October 2025?
You can now catch the full recording of this powerful CPD session that unpacked how fraud really happens — even in small practices and SMEs — and how ethical decision-making can protect your business, your clients, and your career.

🔍 What you’ll learn:
✅ How to spot early red flags of fraud before they cost real money
✅ Fraud prevention tools that actually work in small business settings
✅ How ethics protects your licence and your livelihood
✅ Turning fraud prevention and ethics into revenue-generating advisory services

💼 Presenter:
Leana van der Merwe – Technical Manager at CIBA, with over 18 years in accounting, governance, and compliance.

🎓 CPD Units: 2 (Ethics)
🕒 Duration: 1 hour
💻 Category: Channel 1: Compliance

💰 Cost: