Mitigating the Financial Risks of Fraud and Embezzlement in Cameroon

February 16, 2025

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Mitigating the Financial Risks of Fraud and Embezzlement in Cameroon

Cameroonian tax law, specifically Article 7 of the CGI as amended by the 2018 finance law, establishes stringent criteria regarding the deductibility of losses arising from fraud and embezzlement for Corporate Income Tax (IS) purposes. A thorough understanding of these provisions is essential for all businesses operating within Cameroon.

Non-Deductibility of Losses:

Losses incurred as a result of fraudulent activities or embezzlement are not tax-deductible if they are directly or indirectly attributable to a company’s executives or partners/shareholders. This underscores the critical importance of robust internal controls and a culture of ethical leadership.

Defining Embezzlement:

The scope of “embezzlement” is broad, encompassing a range of illicit activities, including, but not limited to: theft, overbilling, fictitious purchases, accounting irregularities, falsification of invoices, fraudulent loan applications, and misappropriation of any payment instrument (e.g., electronic transfers, checks, and even crypto-assets).

Executive Responsibility:

The regulations extend to all individuals holding positions of responsibility within the company, including Chief Executive Officers (CEOs), Managing Directors, Deputy Managing Directors, Directors, and other similarly situated high-ranking personnel.

Direct vs. Indirect Imputation: A Key Distinction:

Direct Imputation:

Occurs when executives or partners/shareholders perpetrate or directly participate in the act of embezzlement.

Indirect Imputation:

Arises when embezzlement is a consequence of executive negligence. Negligence may be inferred from a demonstrable lack of appropriate organizational structure or internal control mechanisms designed to mitigate fraud risk. Failure to appoint an external auditor (commissaire aux comptes) when legally required also constitutes negligence. Furthermore, even embezzlement committed by a subordinate employee may be indirectly imputed to executives in the absence of a robust control environment.

Evidentiary Burden:

The onus of proof rests with the company to demonstrate that the embezzlement is not attributable to its executives. In cases where the embezzlement is not directly committed by an executive or partner/shareholder, the company must provide compelling evidence that the wrongdoing is not a result of inadequate or non-existent internal controls.

Establishing Fraud: Beyond Criminal Conviction:

A formal criminal conviction is nota prerequisite for the non-deductibility provision to apply. Evidence of fraud identified by the company’s auditor, a social and financial accounts control body, or even the filing of a legal complaint against company officers is sufficient to trigger non-deductibility.

Speculative Ventures and Excessive Risk:

Losses resulting from speculative activities, such as financial investments undertaken by an employee with executive awareness, are also non-deductible if the level of risk assumed is deemed manifestly excessive.

Financial Ramifications of Non-Deductibility:

The financial consequences of non-deductibility are substantial. Disallowed losses are added back to taxable income, resulting in a reassessment of Corporate Income Tax (IS) liability, as well as potential implications for the tax on income from movable capital (IRCM).

Practical Implications for Businesses:

This legislation underscores the paramount importance of:

Robust Internal Controls:

Implementing and maintaining effective internal controls to prevent and detect fraudulent activity.

Ethical Leadership

Cultivating a culture of ethical conduct and accountability among executives and employees.

Independent Audits:

Ensuring regular and thorough audits conducted by qualified professionals.

Comprehensive Risk Management:

Developing and implementing comprehensive risk management strategies.

Need expert guidance on navigating these complex regulations and safeguarding your business? Contact Chenwi & Associates at info@chenwi-associates.com or www.chenwi-associates.com today for a confidential consultation.