In 2004, the Australian Institute of Criminology estimated that fraud costs approximately $5.3 billion each year, with only approximately 6% of misappropriated monies recovered. Fraud is often:

  • undetected
  • not reported to police
  • dealt with internally or not investigated

The typical fraudster:

  • Has no criminal record
  • Has no history of corrupt conduct
  • Is often considered a loyal and well-respected employee who has been with the company for a number of years.

Motivations

  • The biggest incentive is greed. Greed exposes the victim to possible fraud. The thought of wealth without hard work is an enticement to enter into a business/commercial venture, eg the promise of large tax refunds.
  • Financial failing of the business
  • To avoid financial liabilities, including taxes
  • To fund gambling and other personal or business debts.

How They Do It

  • Falsifying documents
  • Creating non-existent employees
  • Creating non-existent suppliers
  • Misappropriating cash
  • Misappropriating income and writing off debtors
  • Misuse of Government or corporate funds, eg expense claims
  • Use of complex structures which make it difficult to trace transactions
  • Muddying the waters so that a clear trail cannot be detected, often done by false entries to accounts
  • False accounting practices, eg one-sided journal entries
  • Changing cheques
  • Use of multiple entities with internal charges between them
  • Organised offenders, ie sophisticated crime.

Detecting Fraud

  • Often detected by a “whistle-blower”, often by accident
  • Review of key financial data
  • Statistical analyses
  • Observance of behavioural anomaly
  • Observance of changes in normal business practices
  • Absence of financial controls
  • Lack of transparency
  • Changes in suppliers
  • Awareness of controls being overridden
  • Missing records
  • Lack of details or explanations in financial records
  • Refusal to answer questions
  • Secrecy
  • Failure to take leave
  • Documents are not originals
  • Working unusual hours
  • Unbalanced bidding for contracts, or suspicious bidding practices
  • Provision of goods or services to employees by contractors
  • Analysis of actual figures vs budget

Investigation

  • Often done internally by inexperienced staff members and not reported to police
  • Often complex and requires careful planning to increase the likelihood of recovery
  • Needs to be conducted on the assumption that it will end up in court
  • Consideration must be given to legislative requirements, such as the Privacy Act, the Workplace Surveillance Act, the Independent Commission Against Corruption Act, etc
  • Should be undertaken by a suitably qualified, experienced and impartial person.

Public Sector Fraud

  • Individuals claiming benefits to which they are not entitled
  • Individuals evading payments to government, eg taxes
  • Individuals contracting to the government to provide goods and services and failing to act as they have been contracted to do, eg incomplete delivery or no delivery at all
  • Providing hourly rates at less than commercial rates and then increasing the number of hours worked, or “bumping” up less qualified staff to higher roles.