Identifying and dealing with fraud in your workplace
Fraud cost the Australian economy about $4 billion annually, making fraud identification and prevention vital.
Fraud ranges from large corporate frauds and tax evasion to small unemployment and medical refund frauds to one off frauds committed on banks and employers by desperate addicted gamblers. There are a number of signals and other indicators that should alert a manager of potential fraudulent behaviour or may indicate a weakness in their office systems that makes the organisation vulnerable to fraud. These include:
- Managers being asked to sign an approval for expenditure, or cheques for payment of goods and services with no supporting documents. Sometimes known as ‘blind approval’.
- Financial transaction documents consistently ‘going missing’. In particular payments made to customers.
- When managers ask for reasons for the above two events staff will sometimes give illogical excuses and reasons for these occurrences.
- Staff who avoid taking holidays longer than a few days.
- Staff who have a role that involves cash handling, payment of creditors and other financial duties who seem to live beyond their means.
- Managers who suddenly become involved in the routine paper work processing financial transactions.
- Any financial system where one person is involved in both the expenditure of funds and the approving of the expenditure of the funds.
- Managers or senior staff, who make changes to work practices and or systems without approval.
- Undue secrecy especially about financial matters.
- Administration or financial records consistently being altered.
Who Commits Fraud?
People who commit fraud can be from any walk of life – sales assistants cheating on their tax returns to managing directors of large corporations can and do commit frauds of varying degrees of seriousness and complexity.
There is a presumption in the community that people who commit fraud are very clever; this is true, however some are also very stupid. When a fraud squad detective receives a report of a financial fraud in a large organisation one of the first things he will ask is, “Who in the company is an avid gambler?” This is because a lot of frauds are committed through necessity, someone in deep financial trouble, which is most commonly caused by gambling.
Regularly read any capital city newspaper and you will find a story of someone committing a serious crime to try and maintain there normal way of life by replacing their gambling losses. These are frequently people who would never consider committing a fraudulent offence, but for their dire financial circumstances see no other way out. Other motivating factors can be an expensive legal matter like a long bitter drawn out divorce proceedings.
What should you do if you suspect a fraud in your workplace?
You should report any suspicions you might have of fraudulent behaviour to your manager, or some other manager you can trust. Above all else you should report your suspicions to only those people who absolutely need to know. This protects staff under suspicion from allegations that may latter not be proved, but also prevents the destruction of evidence.
You should never ignore your suspicions and then later, when a perpetrator is caught, say ‘I had my suspicions’.
As a manager, if a suspected fraud is brought to your attention, you should take just enough action to confirm to you that a fraud is taking or has taken place. This should be done carefully and discreetly so that the suspected person is not alerted and thus any potential evidence is not destroyed. Once this has been achieved a decision must quickly be made to act to preserve evidence and prevent the continuation of any fraudulent offence. In order to do this you may need to consider the use of an expert such as an auditor, accountant or IT expert to assist in the verification process.
How can I prevent a fraud from happening?
There can never be an absolute certainty that a fraud will never occur in your workplace. However there are a number of things that can be done to significantly reduce the likelihood of a fraud event and the early discovery of a fraud when it occurs. These include:
- Regular financial audits
- Regular systems reviews
- Independent expenditure and approval systems
- Strong ethical and conduct principles operating in your company
- Ethical management by example
- A staff education program; and
- Written fraud awareness policy and reporting procedures that is accessible to all staff
When a fraud is discovered in a workplace it can become a very stressful process and an unnecessary distraction from the company’s activities affecting productivity, staff moral and the company’s and managements reputation. It was Benjamin Franklin who said, ‘An ounce of prevention is worth a pound of cure.’
About the author: Canberra-based Lex Saunders has 39 years experience in fraud investigations, management and teaching. He is a former Detective in the Victoria Police Fraud Squad and a former Assistant Director of the Department of Defence Fraud Investigation section. Saunders runs his own fraud consultancy business and is currently consulting as the Risk Manager at the Department of Health and Ageing.