Legal
Issue No. 17 - June/July 2004
Fraud
Any business can fall victim to fraud. All it takes is a weakness in the way an organisation conducts its business. Frauds can be implemented and covered up in many diverse ways. Any person smart enough and motivated enough to commit a fraud may find a way to do so.
Financial services businesses are of course particularly susceptible to external fraud. But a recent survey of large Australian and New Zealand businesses found that 59% of frauds came from internal sources. As you would expect, a significant proportion of these frauds were perpetrated by management; senior employees with responsibility for and access to the business’ financial systems. But more than half the frauds were not committed by management but by other employees.
Fraud is defined as an intentional dishonest act or omission done with the purpose of deceiving. An employee owes a duty of fidelity to his or her employer. The employee must look to the best interests of their employer and not to do anything that will harm those interests.
What those interests are and the ways in which those interests can be damaged will depend upon the circumstances of each business venture. These can include whether the venture is in manufacture, transport, consultancy etc. Each type of business will provide different avenues for obtaining a benefit.
The form of fraud committed against any business will vary according to the circumstances. In the building industry for example opportunities to commit fraud may arise at various stages throughout a contract. Fraud could be committed at the quotation stage with the client being given a “wrong quotation”. At the time of supply excess orders could be generated. During the construction stage materials could be diverted from the project to other purposes.
How can a business protect itself against being defrauded by its employees?
As a first step, employers need to recognise the potential for fraud. Taking care with the recruitme...
