Employee fraud: $398m taken with ease, how can you stop the bad apples?

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Employee frauds of the $1m-plus variety have cost Australian organisations $398m in just over a decade, and the ease with which employees have embezzled the money should come as a stark warning to all risk managers.

According to the recently releases Million Dollar Employee Fraud in Australia report from forensic accountants Warfield & Associates, almost half of the 89 multimillion dollar fraud cases that were identified involved the employee simply transferring company funds to their own account via electronic fund transfers (ETFs).

"The ease with which perpetrators in many organisations used the electronic funds transfer system to simply credit their own bank accounts is very concerning,” report author and Warfield & Associates partner Brett Warfield told AAP. "We see EFT fraud as one of the major fraud issues of this decade."

The report warns that instances of ETF fraud are likely to increase as the use of cheques are phased out by businesses , suggesting that internal controls surrounding ETFs should be tightened.

Indeed, insufficient internal and controls proved to be a major factor that allowed many of the fraudsters to commit their crimes.

“The duration of time taken to discover frauds should be of real concern to those responsible for governance in their organisations. No organisation can completely stop fraud from happening. However, a number of these organisations had large frauds occurring that were not discovered by their internal controls and reviews over what can only be regarded as an incomprehensible period of time,” said the report.

“It is clear that educating staff about the warning signs of fraud and basic fraud risk mitigation strategies have been absent in most cases. Training staff in what to look for and identifying the ‘Red Flags’ of fraud is an invaluable fraud mitigation and detection tool. All organisations, regardless of size, should consider fraud awareness training.”

Other key findings included:

  • 89 cases were identified involving 93 employees.
  • 66 of the 93 perpetrators were male and 27 were female.
  • Perpetrators ranged in age from 24 to 67 years old.
  • At least seven perpetrators had prior criminal histories for deception related offences.
  • $398 million was stolen.
  • Nine cases involved at least $10 million being stolen.
  • The largest amount stolen by an employee was $45.3 million.
  • The banking sector was the hardest hit with 30 frauds. This was more than a third of all cases.
  • Every person included in this research was sentenced to a gaol term.
  • In two cases, offenders received a jail sentence of only six months non-parole.
  • Gambling addiction was the main motivating factor in 46 of the cases. This is more than half the cases in the research.
  • 43 cases involved employees transferring some, or all, of the fraudulently obtained funds to their own bank accounts by electronic funds transfer. With cheques being phased out by businesses, more Electronic Funds Transfer crime will occur in the future.
  • Victoria had more than 1/3 of all frauds yet NSW incurred the biggest losses totaling $153 million.
  • Accountants and Bookkeepers were the most prevalent job titles of the perpetrators.
  • Of the 62 employees who committed fraud against organisations other than banks, 38 were employed in the finance department.
  • Only nine of the cases involved collusion with another person or persons.
  • 40 of the frauds took more than five years to discover.
  • In many cases it is clear that a forensic audit of key areas would have prevented frauds from continuing.

Click here to read the report in full.

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  • adel alkhatib on 23/08/2012 3:41:48 AM

    good article and a nice warning to risk manangers but what about the fraud commited by gov

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