Australia: How could you commit fraud?

Last Updated: 6 December 2015
Article by Paul Curby and Matthew John Lim

Capitalise on your employees' knowledge when it comes to Fraud Risk Management

1 Introduction

KordaMentha Forensic staff have undertaken risk management assignments for organisations in different parts of the world, from developing countries to first world countries. Although many of the organisations we have worked with had fraud risk management plans in place, on every occasion we have uncovered multiple methods by which those same organisations could lose anywhere from $10,000 to in excess of $100 million (you choose the currency!). It can be surprisingly simple (once understood) for this to happen by circumventing some of the steps associated with the approval process to authorise wire transfers out. Those organisations had initially thought their fraud risk controls were strong, until we pointed out their weaknesses.

A recent survey showed 32.2% of fraud cases occurred in organisations that lacked internal controls to prevent fraudulent behaviour1 . This suggests that some organisations remain complacent and simply 'set and forget' their fraud risk management plan. They do not test it regularly, and ensure it is updated as new business products or services are introduced. This can allow weaknesses in controls to develop which, in turn, could allow fraud to occur.

So how do you prevent these weaknesses in controls? We suggest that your organisation taps into the knowledge and concerns of staff to develop a stronger fraud risk management system. Organisations that have grown through mergers and acquisitions are particularly vulnerable because of 'bolt on' and 'legacy' systems, and even organisations that grow organically are susceptible if they take their eye off the ball. Scheduled testing of the control environment for fraud scenarios, and involving staff in that process, is a vital part of fraud prevention, awareness and education. Involving your staff helps build your front lines (and back lines) of defence. If you are not doing this, then you are potentially giving a green light to fraud.

2 Find the weaknesses in controls by asking your employees

One of the reasons that white-collar crime has flourished is that people prefer to avoid conflict, confusion and confrontation. In a work environment where we like to trust and be trusted, it can be difficult for someone to ask a colleague or peer whom they like and trust to explain a decision, or to ask for supporting documents to verify a transaction.

However, even if they don't want to ask difficult questions of their colleagues, employees are the best eyes and ears to identify fraud. In 2014, 42.2% of initial detection of fraud was through a tip-off and almost half of these tips (49%) came from an employee2 . While employees are the best source as whistleblowers, it relies on them reporting the issue after the event, rather than being proactive.

The most effective method to uncover control weaknesses and identify how a fraudster could commit a fraud is to enlist the help of your staff who input and process transactions. They know the weaknesses and the shortcuts, and those controls which may have been 'operationalised' over the years under a false sense of security and with an intention to make life easier. They know transaction types that will be queried and whether any fraudulent transactions could get through the existing systems and controls.

We find that there can be an over-reliance on software, internal audit departments, corporate security or even external audit to conduct fraud risk reviews. Rather, our experience shows that eliciting information on the 'how to defraud' scenario requires a specific skill set, and an organisation must be careful to select the right people to lead the project. This usually requires only two people to run such a project. Importantly, staff who participate in interviews and workshops need to feel that they can share information, feel safe to expose the flaws, real or perceived.

We are often asked whether including staff in the reviews may increase the risk of fraud by 'giving them ideas'? In our experience, it does not. They already know the weaknesses, but these are rarely discussed. By exposing the flaws, you will reduce the risk because now everyone knows what to look out for.

The planning for a 'how to defraud' review is key: ensure that you understand the business drivers and systems and obtain the right mix of staff to participate.

3 So what next?

As part of your review, take a deep dive into your control environment to really understand where the risks may lie.

The good news is that you don't need much management time to devote to such a project. In order to do this we recommend:

  1. Identify the department or area you want to review e.g. front office, back office, or financial shared service centres
  2. Take stock of the systems and processes used in that area to process transactions
  3. Work with your project leader to select an appropriate cross section of staff to participate in interviews and workshops
  4. Sell the fraud risk management review to your staff and enlist their support.

It really comes down to the touch points in your organisation. A perpetrator (internal or external) looks at your organisation to find the weak link as a way in to defraud you. Where will s/he look? Everything is on the table. Looking at your organisation, s/he will look at:

  • Contact points in your various departments (e.g. front office sales)
  • Contact points with your suppliers (e.g. procurement department)
  • Contact points to your bank accounts (e.g. payment approvers, payroll manager)
  • Contact points to your inventory/assets (e.g. warehouse manager, security system)
  • Contact points on your computers (e.g. exchange servers).

Speak with your key staff about potential control weaknesses at your organisation in each of these areas.

Also, don't forget, when testing your control environment, to consider how ex-employees could commit fraud.

Normal staff turnover means that an average of 12% of your staff leave every year3 – those people often have extensive knowledge of your organisation's systems and controls. Once they leave, however, management have little control as to what an ex-employee (particularly an aggrieved one) may do with knowledge of your control environment (and its weaknesses)! Again, we suggest speaking to your staff to find out what risks they think exist in this area.

If you are an international organisation with functions replicated across geographic locations, there is real benefit in executing the results of what you find in Australia to other locations. In that way, you can get some real leverage.

It may be a solo dance or it may take two to tango ... or three or four

Collusion is a factor that should be taken into consideration, as it is easier to bypass controls if fraudsters work together rather than alone. A recent survey by the ACFE showed that over 45% of frauds had two or more employees involved, and if that was the case, then the median loss rose by 150%4 .

Collusion between employees allows fraudsters to get around the most carefully planned segregation of duties (a mechanism to spread responsibility and avoid any one person having too much control over a particular business function).

While collusion may be a difficult area to prevent, make your staff aware of the risk of collusion – they are best placed to identify such behaviour.


So is regular testing of fraud risk management essential for an organisation? We certainly think so, and our experience shows that staff inclusion in the fraud risk management activity is the best way to action that testing. Discussing the risk of control weaknesses with staff enlists their support, and also adds additional eyes and ears in the battle against fraud.


1 Page 39 of the ACFE Report to the Nations 2014
2 Page 19 and 21 of the ACFE Report to the Nations 2014.
3 According to the Australian Human Resources Institute survey on staff retention and turnover for 2012, an organisation of 1000+ employees has a staff turnover rate of about 10% per year while an organisation of 500–999 employees has a staff turnover rate of about 14% – that is an average of 12% of your staff every year!
4 Page 46 of the ACFE Report to the Nations 2014

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.