Fraud Doing Famously in the Brave New eWorld Shopfront

You know Australian businesses have plenty to worry about when you see an accounting firm such as Horwath setting up fraud deterrence and investigation services to cater for this growing and long-ignored problem of crime in our businesses.

Sandra Lawrence, an ex-Australian Federal Police officer, has teamed up with Andrew Johnson, an accountant with Horwath to warn business owners and managers not to be complacent about their operations. The Australian Institute of Criminology claims fraud is costing businesses over $3.5 billion a year. And not only do many businesses have no effective systems to stop fraud, but when confronted by it, handle it so badly that the culprit may get off. Lawrence told me of one woman who was suspected of embezzling over $100,000 from a firm but after methodical questioning admitted to have pocketed something closer to $700,000. I had a slight brush with a famous fraud case when doing a seminar for some accountants and recounting the case of a woman, who had been cooking the books. She was coming under notice by one of her accountant colleagues and arranged for him to be roughed up. But the thugs went too far, and the guy died. She also tried to burn down the office in order to cover her tracks.

It later came out this same woman had done a big steal from a previous employer who had failed to prosecute – probably to avoid embarrassment and bad publicity – and so lived to repeat her larceny at someone else's expense. While I was telling this, a chap in the front row politely said: "Don't go there – I was the CFO at that firm!" Clearly, when it comes to fraud and protection from it, business has to go there. Lawrence and her fraud team insist that not only are the number of fraud incidents rising but the size of each scam is growing too, while petty theft is still rife. Worse, the cost is not simply calculated. There is a morale issue. Staff turnover also rises. Not only bad but good leave. The former forced, the latter voluntarily. As better business policy, managers should have assessed just how vulnerable they are to the risk of fraud. High risk areas should be identified. And fraud prevention policies should be in place. For those with a penchant for the dramatic, fraud and other crimes have sent businesses broke, but mostly it simply eats profits.

HLB Mann Judd's, appropriately-named fraud expert, Darryl Swindells, advises that the first rule to reduce the chances of being robbed by employees, or anyone else, is to have the right systems in place. Also, he believes creating the right workplace ethos can be really cost-effective. Typical examples of simple fraud:

• Opening mail and taking cheques

• Corporate credit cards for personal use

• Using company cheques for paying personal debts

• Processing fake vendor invoices for payment

• Bogus companies take delivery of company goods, then writing it off as bad debt

• Using company assets for personal use.

• Taking home company supplies

Here are some warning signs:

• Cheque payments are not being properly approved

• Employees responsible for payments or receipts who do not take vacations

• No audit trail to support accounting entries

• Unusual or illogical accounting entries

• Sudden changes in an employee's lifestyle, or employees who develop expensive interests.

HLB Mann Judd's Jean-Marc Imbert believes the internet has made fraud and its detection an even bigger issue – whereas before we always had a paper trail to at least try to track down suspicious developments.

"The impact of e-commerce means that much of this paper trail has disappeared and even orders and payment details are now only recorded electronically," Imbert said. "This can be a nightmare for businesses, and in turn is a real concern for auditors, as the assurance that checks and balances are in place to safeguard the financial integrity of an organisation can be lost." What the experts point out is that there are internal and external threats for us to be mindful of in the brave, new e-world. The classic example of such a threat is the external (non-employee) and internal (employee) systematic misuse of a company's credit card. This can be compounded if the goods bought by the criminal are shipped to a far off place where recovery is difficult – say Kabul! Internal control requirements make a lot of sense and could save you a lot of dollars.

Disclaimer

The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.