Australia: The Arrival Of International Fraud Trends In Australia

Two recent significant international reports dealing with fraud issues and trends in the United States and the United Kingdom, namely the FBI Financial Crimes Report to the Public 2006 (USA) and Fraud Review and Response to Consultation (UK), provide sobering reading for Australian businesses, especially when one considers that many of the schemes and scams referred to in these reports have already hit our shores.

In fact, the speed at which overseas fraud trends and scams now make their way to the Australian market appears to have increased at an alarming rate in recent years. Whereas in the past there had been a time lag between fraud trends and scams operating abroad and then emerging later in Australia, that lag has now all but disappeared. Many of the trends and scams that emerge overseas now operate in Australia almost simultaneously, and we no longer have a roadmap to pre-empt and guide us through the approaching risks and dangers.

Many of the fraud schemes identified in the US and the UK disclosed a "network" involved in the fraudulent conduct. The network was not restricted to specific criminal organisations but included groups of individuals who had simply worked together to perpetrate a fraud. Certainly fraud perpetrators are becoming more familiar with technology and are able to use and abuse that technology for their criminal activities. However, it is clear that fraud is increasing, because those willing to participate are collaborating. Where a network of fraud perpetrators is involved in the activity it is an effective way of delaying detection, buying more time and causing more damage. By the time the red flag is finally raised, the money and the perpetrators are long gone. That trend is evident here in Australia already and it is likely to continue, and grow.

The reports indicate that there are industries that are particularly vulnerable because they operate in an environment which provides easy access to large amounts of money. These include:

Mortgage fraud has been identified in the FBI Report as pervasive and growing. By its nature, it offers access to large and immediate sums of money (ie through a loan or mortgage). The money is usually available within a short period of time and the process to obtain the money is relatively simple. The schemes and scams identified in the FBI report highlight the attraction. One significant scam within this industry is "property flipping", a process whereby a property is purchased for a low (but genuine) value and is then "flipped" so that the value is artificially inflated. A loan is then taken out on the inflated value of the property (with the property as security being essentially worthless) or the property is on-sold to unsuspecting third parties. The value of the home is artificially inflated through the use of a co-conspiring appraiser or through a series of multi purchases within a co-conspiring network. In Australia, we have already seen examples of mortgage and loan fraud. Losses have already run into the millions as organised fraud networks take advantage of weaknesses in the lending industry.

The US experience suggests this will be an industry that will face further and significant fraud activity in the near future.

Again, the superannuation industry is one where large sums of money are available quickly. While scams and schemes in this sector are currently mainly aimed at the recipients of superannuation entitlements (many of whom are elderly and vulnerable to undue and fraudulent influence), particularly when paid as a significant sum, there is now an even greater concern that the superannuation funds themselves are susceptible to fraud. In 2005, $844 billion were held in

By 2020, it is estimated that $2,000 billion will be held in those funds. Although management controls are strictly applied, it is nevertheless an industry of substantial fraud risk.

The healthcare industry is particularly vulnerable to "skimming" fraud. That occurs when small amounts of monies are fraudulently claimed in multiple transactions in order to ultimately generate a large lump sum. Over multiple thousands of transactions, small amounts go undetected, but the "pot of gold" at the end of the process is substantial. New data mining and data sharing technologies have enabled the healthcare industry to detect scams, but the industry remains at risk.

Unfortunately for the insurance industry, whilst tightening controls on injury claims has reduced the prevalence of fraud in that area, there is significant increased exposure in the policies available within high-risk and other fraud-susceptible industry sectors. Business insurance, mortgage insurance and health insurance must now deal with emerging fraud trends in increasing numbers.

The UK Fraud Review report recommended extensive revision to the approach of fraud management, including the implementation of a National Fraud Agency, changes to prosecution and sentencing of fraudsters, and a significant review of data sharing. Encouragingly, Australia has already implemented many of the report’s recommendations. Most recently, the 2007/2008 Federal Budget provided $130 million to improve data matching capabilities across agencies, including Centrelink, the Australian Tax Office and the Department of Immigration. The process is expected to save $270 million over three years. Ultimately, however, the responsibility to successfully reduce fraud still rests with the individual. For all the cleverness, technological skill and elaborate construction that create fraud scams, fraud is usually most successful because of carelessness and inattention (for example, documents not properly witnessed, facts not properly verified, procedures not thoroughly followed). The road ahead is unknown and full of risk. Now more than ever we must be alert, attentive and responsive.

www.hunthunt.com.au

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