Identifying and dealing with fraud in your business

Wednesday 3 February, 2016 | By: Darrell Giles | Tags: fraud, forensics, Australian Institute of Criminology;

The Commonwealth definition for fraud is “dishonestly obtaining a benefit, or causing a loss, by deception or other means.”

Ulton partner Bernard Whebell says it involves activities that usually occur in secret, deceive others, often go undetected, and result in a gain for the perpetrator and a loss for the victim.

In this interesting article on Fraud and Forensics, Mr Whebell looks at steps taken to identify fraud, fraudsters and what to do when you as a small business owner are become aware of fraud in the workplace.

How costly is fraud?

An Australian Institute of Criminology (AIC) report states that fraud costs more than $6 billion per year – which is more than any other type of crime in our society, business or otherwise.

To make a comparison, drug crime costs $3b, burglary $1.6b, assault $3b, and arson $2.3b.  Also, to put it into broader perspective, the total cost of crime is estimated to be $47.6b per annum – which would mean that fraud makes up more than 12 per cent of all crime in Australia.

Types of fraud

The most common type of internal fraud in business is asset misappropriation – such as employees claiming for overtime not worked or for reimbursement of non-business expenses, stealing inventory, and / or skimming revenues.

Other types of fraud may include identify theft to obtain another person’s funds or assets, financial statement fraud, and corruption such as bribes.

Some examples of external fraud include rigging of bids, receiving bills for goods that were not provided, bogus insurance claims, loan fraud, and IT fraud involving the use of information technology – such as internet and email scams. 

Profile of a fraudster

There is no single ‘type’ of person when it comes to those who commit fraud, and the majority have had no prior convictions or history of dishonesty. According to data, a fraudster is:

•             Three times more likely to be male – at 76 per cent compared to 24 per cent.

•             More likely to act alone – 71 per cent to 29 per cent.

•             More commonly in the 25-44 age bracket at 50 per cent.

In addition, external parties and non-management employees make up the bulk of fraud at 74 per cent.

How and why does it happen?

Three factors usually need to be in place for fraud to occur successfully – pressure, opportunity, and rationalisation.

Let’s say in a particular SME there is a male employee, aged 43, who has never committed a crime before and who came to the company with no deliberate intent to commit fraud. However, he finds himself struggling to pay bills and expenses for his family, and is tired from working for so many years without adequate remuneration (in his view).

Procedures around finances and payroll in the business are noticeably lax, and he finds he can easily put in for overtime without anyone questioning or signing off on it. He rationalises his actions by saying to himself that the company can afford it and would hardly notice anyway, and that he deserves it because he is underpaid.

What are some of the signs of fraud?

While not all fraud is internal, there are some red flags to look out for among your staff members, such as:

•             Living beyond their means – such as driving around in an expensive flashy car.

•             Secrecy around work and unwillingness to share duties.

•             Evidence of drug or alcohol abuse or gambling.

•             Reluctance to take annual leave.

•             Past problems with employment, but it’s unclear as to what these were.

•             Resentment and complaints regarding remuneration.

•             Personal problems at home that are affecting their finances.

What to do about fraud

Detection, reporting, and prevention are all important aspects of combatting fraud in your SME.

•             Detection may involve running surprise audits, setting up an anonymous hotline or other means for workers to report suspicious happenings, and simply becoming more aware of what is happening in your business.

•             Reporting to the appropriate authority such as the local police may be required, especially to prevent further acts of fraud by the perpetrator.

•             Prevention may need to involve conducting regular external audits, implementing rigorous internal controls, improving security, conducting thorough background checks on prospective employees, providing adequate staff training, conducting annual performance reviews, and rewarding employees with pay increases and recognition for a job well done.

To learn more about fraud prevention for your SME join Ulton partner, Bernard Whebell as he presents ‘Fraud and Forensics – Part 1; Steps to take to identify fraud, fraudsters and what to do when you are aware of fraud’ on Wednesday 10 February 2016.

To register please visit


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