Make fraud the focus of new financial year, experts say

Small business owners are being urged to educate staff about fraud issues in the new financial year, with research revealing some states are more vulnerable to fraud than others.

KPMG’s Fraud Barometer, released every six months, monitors the level of major reported frauds in Australia, with all frauds detailed in the report exceeding $100,000.

The latest barometer, for the December 2010 quarter, reveals that although large frauds continue to occur across the nation there is a notable concentration of cases on the eastern seaboard.

The barometer reveals 70% of large frauds occurred in Queensland, NSW or Victoria and by value NSW accounted for almost 50% of large frauds prosecuted during the period.

The other notable region is boom state Western Australia where for the second consecutive quarter the state recorded more than $25 million in large fraud cases.

The overall level of fraud hasn’t fared any better with cases coming before courts exceeding $100 million for the sixth consecutive barometer period.

“The most common victims by far were commercial businesses – ranging from family-owned enterprises to large listed companies,” the report says.

“Organisations need to invest in understanding the fraud hotspots, thereby preventing these types of frauds or detecting them soon after they are perpetrated.”

According to the report the greatest threat for commercial businesses was generally within, with most frauds suffered by those businesses committed by internal staff.

Men are more likely to commit fraud than women, with the report revealing that men accounted for 70% of cases and 87% of the value.

“Interestingly there were no cases involving women under the perpetrator categories of organised crime or customers,” the report says.

“The majority of frauds perpetrated by women related to accounting fraud in their internal capacity as employees or management within an organisation.”

Chris King, an audit and assurance partner at accounting firm HLB Mann Judd, says the new financial year is the perfect time for SMEs to raise awareness about fraud while investing in measures to mitigate fraud risk.

“While every business understands the importance of focusing time and money on strategies to minimise tax they should also be looking at systems to avoid fraud,” King says.

“For SMEs who cannot afford internal audits fraud can present a major threat which often goes undetected … and while many businesses feel protected by the assurance of technology, it is really just providing another avenue to perpetrate fraud.”

In addition to technology fraud King identified three traditional areas where fraud is perpetrated:

• Stolen stock – probably the most common type of fraud.
• Payroll fraud, which can be perpetrated through directing funds to a dummy employee on the payroll or diverting union fees into another account.
• The security of cash and cheques. When a company has a single signatory system it leaves them vulnerable as does accessibility to cash.

“Employees often commit fraud to support a lifestyle or addiction and it can be brought on by significant life changes like a marriage breakdown,” King says.

“Telltale signs of fraud are when people start living outside their means, buying new cars and homes or taking holidays when they never did before.”

King says if fraud is discovered it is important that staff understand whistleblower legislation and mechanisms for reporting fraud.

“Employees and businesses must protect themselves and ensure they can present a strong body of evidence for the perpetrators to be prosecuted,” he says.