LESSONS FROM THE BIGGEST BANK HEIST IN SOUTH AFRICA
And no I am not talking about the famous Netflix series “Money Heist”, but it wouldn’t be a bad idea if we had our own film (deep thoughts). The trending story in the news this week has been the arrest of the former VBS executives. The charges against them include racketeering, theft, fraud, and money laundering to the tune of almost R2.7 billion, a majority of which belonged to pensioners and the less fortunate. VBS is an institution that dates back to 1982 when it was established as just a building society. In 1992 it became a mutual bank and it had plans to list on the Johannesburg Stock Exchange by 2017. A dream that unfortunately did not materialise, instead, in March 2018, VBS was placed on curatorship by the South African Reserve Bank. The reason, at the time, was that the bank was experiencing liquidity challenges, and it needed to be placed under intense regulatory scrutiny.
What was discovered by the curator shocked the country. Evidence of widespread looting, fraud, and corruption to the tune of around R2 billion by individuals and companies related to those individuals was uncovered. By then, the bank owed municipalities R1.6 billion, and a number of them were placed under administration. Later in 2018, after discovering that VBS was hopelessly insolvent and massive fraud had been perpetrated against it, it was decided that it was best to liquidate it.
One of the findings against the bank is that their financial statements were allegedly cooked and flawed in many respects. Assets were inflated by just over R1 billion and Liabilities were reduced by around R300 million. The audit partner from KPMG who signed off on these financial reports is also part of those facing persecution. It is alleged that he received over R34 million for his role in covering up the fraud. He has since resigned from KPMG.
While this story may seem far fetched and hard to relate to for entrepreneurs such as yourself, it is not at all. The events that unfolded at VBS may become a reality to any entrepreneur if the lessons stemming from there go unnoticed. What transpired at this bank was a total lack of sound ethics, governance, and authentic leadership. We do not know how the VBS Bank Heist scandal will end, but we certainly hope that those responsible will face the full might of the law. All businesses can learn a few great lessons from the collapse of this 38-year-old mutual bank.
Business Ethics start from the top
In the case of VBS Bank Heist among the accused include the Chairperson and other board members. These were the primary leaders and the most trusted individuals to run the bank. In any business, the management team sets the tone on how the business will run on a day to day basis. They are also responsible for setting the tone on ethical practices and behaviours. If you, as the business owner together with your management team, fail to build a culture of ethics, you will not succeed in running a business that is viable and sustainable. Soon enough, you will slip up and end up losing any positive reputation you and the business were enjoying. Not only that, but you will also build a culture of unethical behaviour in the business which will filter to your staff and other stakeholders. In the case of VBS, it filtered down to even their auditors and prominent politicians.
Financial report manipulation comes at a hefty price
Financial reports tell the story to the world about what is happening in your business. Major decisions relating to the business, such as funding are based on these reports. That is precisely why there are different levels of assurance placed on a business’ annual financial statements depending on the type and preparer of the reports. If you manipulate these, you are in breach and will be held liable under several different laws and regulations among others being the Companies Act, the different Tax Acts and other industry-related laws. Most of these laws can reach to an extent where you are held responsible in your personal capacity, especially if your business is a company and you are a director.
Businesses have a moral duty and a social impact
In the case of VBS, we know that many pensioners and poorest of the poor in our country lost their savings as part of stokvels and burial societies. We all saw the elderly in the news queuing outside the bank in the wee hours of the morning hoping to get their cash. No matter the size of your business, you must always be cognisant of its social impact. Poverty, inequality, and unemployment are some of the challenges that we face in this country. Your business contributes directly or indirectly towards the alleviation of these economic challenges. The staff that you employ to feed their families with their income. The products or services that you offer or CSI programmes you run make a difference in someone else’s life. This means that you an entrepreneur have a moral duty to be responsible and not intentionally cause any negative impact within reach of your operations.
Fraudulent and unethical behaviour is a serious issue that can take any business down, no matter the size. Not only that it could take you the owner down with it as well and you may just end up in prison. Compromising ethics almost always leads to failure which is why you need to protect yourself, your business, and its reputation.