Reducing the Risk of Fraud

The term 'fraud' encompasses a wide variety of corrupt, deceptive, dishonest or unethical behaviours. Fraud can be internal (by staff) or external (by customers or suppliers).

Internal Fraud - Fraud by staff

Internal fraud can include employees and staff undertaking any of the following actions:

• theft of cash or stock;
• theft from other employees;
• not charging friends, family or accomplices;
• allowing accomplices to use bad credit;
• supplying receipts for refunds;
• allowing friends to steal; or
• participating in delivery scams.

Sometimes, employees will rationalise the fraud by:

• trivialising the offence:
• "They can afford it"
• "No harm done"
• "Everyone does it"

• claiming unfair treatment as a justification:
• missing out on promotion;
• feeling remuneration is inadequate;
• unfair treatment compared to colleagues;
• disciplinary action; or
• resentment at lack of appreciation.

The risks of internal fraud include:

• stolen, embezzled or "discounted" stock;
• loss of cash or securities;
• loss of company funds or critical information; and/or
• loss or damaged business reputation and custom.

You may be at risk of internal fraud by employees who:

• work long hours;
• return to work after hours;
• are unusually or overly inquisitive about the company's payment system;
• resist taking annual or sick leave;
• spend excessive time in toilets, outside etc;
• avoid having others assist or relieve them;
• resign or leave suddenly;
• have a large number of voids; and/or
• have a low number of transactions.

Also, look out for registers that are consistently over or under, undelivered goods, and two or more transactions for single credit card in a row.

Reducing the risks of internal fraud

Step 1: Develop clear policies that cover:

• serving or processing transactions for family and friends;
• personal purchases/transactions;
• personal use of equipment such as telephones, lap-top computers, video cameras etc;
• training and education for staff; and
• authorised delegations.

Step 2: Have clear transaction procedures, including:

• a pre-determined "float";
• petty cash limits;
• daily banking - by two people if possible;
• dual signatures on cheques;
• provision of receipts and acknowledgment of transactions;
• limited access to safe by staff;
• keeping registers closed unless in use; and
• segregating purchasing, receipting and paying.

Step 3: Provide strong, consistent supervision of staff:

• have supervisors monitor delegations;
• supervise employee compliance with procedures;
• regularly review cash shortages and report instances where an explanation is unsatisfactory;
• supervisors should check receipts and documentation; and
• challenge suspicious transactions.

Step 4: Regularly review and monitor your registers of assets and your transactions:

• record all transactions;
• conduct regular stock takes;
• keep a register of your tools, equipment and assets; and
• wherever possible, engrave your business property with an identifying number (such as your ABN).

Step 5: Establish strong audit procedures including:

• reconcile bank deposits with register totals regularly;
• acquit all claims and allowances to avoid duplicate or multiple payments;
• audit IT systems regularly;
• conduct regular and random audits of all processes; and
• randomly check wages and allowances for overpayments.

Step 6: Maintain security of information:

• limit access to confidential information;
• enforce the use of employee ID;
• regularly change passwords for computers, alarms etc;
• review and investigate security violations; and
• cancel access promptly when people transfer or leave.

Step 7: Establish strong human resource management procedures by:

• undertaking pre-employment screening;
• implementing equitable remuneration system;
• providing job descriptions that segregate duties;
• providing adequate training and education; and
• communicating policies, expectation of compliance, audit regime and consequences of non-compliance.

External Fraud - Fraud by customers

Credit cards and EFTPOS fraud

The risks include:

• fraudulent monetary transaction on credit and debit cards;
• used at bank branches to obtain cash advances;
• used at merchant establishments in payment for goods and/or services;
• at automatic teller machines to obtain cash advances;
• theft from the authorised holder; and
• fraudulent manipulation of EFTPOS terminal by offenders.

Credit card an EFTPOS fraud can happen by:

• use of counterfeit credit cards;
• use of stolen/lost credit cards. Cards are often stolen from
• the glove boxes of motor vehicles;
• unattended clothing and handbags in business premises;
• within the postal system;
• cardholders letter boxes;
• lack of compliance with checking procedures by staff; and
• insufficient security of EFTPOS terminal at point of sale.

For more information on how to reduce credit card fraud, see Credit Card Fraud Reduction.