Lifestyle audits, also known as lifestyle assessments or lifestyle checks, are an auditing tool that is used to detect, prevent and avoid corruption or fraud. Many South African businesses are using lifestyle audits to assess the legitimacy of their job applicants and employees. It is important for owners and employers to understand the benefits of a lifestyle audit and how they can be used to protect their businesses.
A lifestyle audit is a financial process that measures an individual’s lifestyle, such as assets owned, spending habits and where they live, against their income earned. If an applicant or employee is living well beyond their means, it can be an indicator of corruption or fraud. Lifestyle audits can be an effective part of an overall monitoring programme or as a precautionary measure to identify red flags of potential employees.
Lifestyle audits are considered by many South African business owners and commercial employers to be a critical tool for preventing fraud and rooting out corruption. Let us take a closer look at what a lifestyle audit entails and why they are necessary in today’s commercial environment:
How do lifestyle audits work?
Lifestyle audits are typically conducted when the observable lifestyle or standard of living of an individual appears to exceed that individual’s discernible income. Detecting these discrepancies are an indicator that closer inspection of their livelihood is warranted. If red flags are raised, an assessment of that employee or applicant’s spending, assets and investments against their known income is conducted, including their household, employment, and criminal histories.
If the lifestyle audit uncovers a significant discrepancy between an individual’s reported earnings and how they are living; there is an increased likelihood of illegitimate incomes. The individual may be earning from illicit or illegal income sources, such as corruption, embezzlement, theft, bribery, or any number of fraudulent schemes. Lifestyle audits are used to identify risks that are sometimes missed in a traditional financial audit.
Why are lifestyle audits necessary for businesses?
It is well-known that people who generate wealth from illicit or illegal activities, like theft, tax fraud or corruption, will conceal their assets amongst ‘seemingly’ legitimate income sources to avoid detection. Lifestyle audits can be used to identify criminality by understanding how the individual is spending, earning, and concealing income. Forensic investigators look for discrepancies in lifestyle and income by discovering conspicuous assets, properties, and offshore investments.
Although a lifestyle audit is uniquely capable of identifying well-hidden corruption or fraud, the real benefit to any organisation is knowing that every employee and business partner is trustworthy and legitimate. Auditing techniques have been refined over decades and lifestyle audits use these for a multitude of applications that are intended to protect the integrity of businesses and recognise potential criminality.
How is someone selected for a lifestyle audit?
Lifestyle audits are no longer just the purview of government entities. Businesses use lifestyle audits to monitor specific employees or job applicants that have raised red flags. An individual may be singled out for making lavish purchases or living above their means, without a pay raise or alternative income streams. The main purpose of these audits is to expose corruption or fraud by suspected criminal employees and applicants.
Lifestyle audits have proliferated South Africa over the past decade. Initially used by government to crack down on corruption in the public sector, they have become a critical tool for SARS, regulatory agencies, and commercial organisations in recent years. In tax fraud cases, a computer algorithm highlights questionable changes in lifestyle or earnings that might indicate criminality. However, businesses use their own programmes, auditors, and indicators to identify who needs to be assessed within their organisation.
How do businesses benefit from and utilise lifestyle audits?
The most important benefits of a lifestyle audit for businesses are to prevent in-house or incoming illegal activity and to protect the company’s financial status. They can also assist in the identification of hidden assets, support forensic financial investigations, and recover any earnings that were obtained illegally. An individual can be chosen for their risk scoring and profiling, spending habits or lifestyle red flags – and a lifestyle audit will uncover the facts.
Frequent monitoring and assessments
The variety of auditing and evaluation techniques used in a lifestyle audit are designed to assess an individual’s lifestyle, spending habits and behaviour, pointing to one or more red flags. There is complexity and volatility to illicit financial activity because criminals are well-trained at hiding their illegal footprints. Ongoing criminality is likely and will continue to threaten your company if these criminal actors go unchecked.
Lifestyle audits for questionable job applicants or current employees should be continuous and evolving, as they may not be able to identify criminality straight away, but they will in the end. Companies should integrate continual financial and lifestyle assessments into their financial operations and hiring practices to help detect any and all fraudulent activity that, if unrestrained, could put the entire business and workforce at risk.
MarisIT have extensive experience in designing and running financial audits for South African businesses, organisations, and individuals. MarisIT’s comprehensive lifestyle audits help ensure that your current or future employees are the right person for the job. To learn more about the verification systems, background checks and auditing services we offer, contact MarisIT today.
