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.