What is Fraud?


Fraud can seriously affect the solvency of a business.  If it goes undetected fraud will not only hurt the bottom line but contribute to a negative culture among staff and affect your credibility in the market.


The greatest fraud risk to a business is the thought that fraud is not a threat at all.


A good business constantly reviews its policies, practices and systems against internal and external threats.  It is vital that businesses are aware of what constitutes fraud, either as an internal or external threat, regardless of whether or not the business thinks it is at risk.


Internal threats more often than not involve staff taking advantage of poor or inadequate practices and systems especially in areas such as:

  • Book-keeping
  • Accounts payable
  • Salaries wages and overtime
  • Materials, tools and equipment


External threats primarily involve:

  • Fraudulent use of credit cards
  • Misuse of cheques
  • Misrepresentations about goods or services received


Fraud does not always involve the notion of monetary gain. On the contrary, it can be defined as encompassing a wide variety of corrupt, deceptive, dishonest or unethical behaviours.


The following definitions are provided as examples of fraud:

  • Deceit, trickery, sharp practice or breach of confidence, by which it is sought to gain some unfair or dishonest advantage.
  • An intentional mis-statement of information to obtain financial benefits through improper, unauthorised or illegal actions.
  • Using false representations to obtain unjust advantage.
  • Obtaining money or property by deceit.


What is Credit Card Fraud?


Credit card fraud is primarily defined as the unlawful use of a credit card and or credit card facilities by using:

  • Counterfeit credit cards
  • Stolen or lost credit cards

It normally occurs in the following ways:

  • Cash advances at bank branches or Automatic Teller Machines (ATM)
  • Presentation at merchant establishments in payment for goods and/or services

Contributing factors to credit card fraud are:

  • Poor card and personal identification number (PIN) security. 
  • Inattentive staff.
  • Inadequate credit card handling procedures.
  • Fraudulent manipulation of EFTPOS terminal by persons.
  • Theft from the authorized holder.                 


What is Identity Theft?

Identity Fraud involves an individual representing himself or herself to a business as either another real person or a fictitious person in order to obtain goods, services, money or another benefit. This representation is more often than not supported by fraudulently obtained, altered or counterfeited documents that a business may rely upon as proof of that person’s identity in its client handling procedures.


How do I prevent fraud?

Have a Fraud prevention plan. Fraud can flourish in an atmosphere of ignorance and neglect. However, a fraud prevention plan will help your business seek out actual and potential fraud, particularly when administrative and managerial staff and individuals exploit weaknesses in the systems.


The implementation of a fraud prevention plan is a critical part of the monitoring process for management and treatment of employees and customers who may consider committing some fraudulent act on the business.


The key to a good fraud prevention plan is:

  • A simple, clear and concise document that identifies the areas of risk for the business, the controls in place to minimise fraud occurring and the roles and responsibilities of staff.
  • A proactive audit strategy.
  • Access to suitable skilled people to investigate fraud.
  • A clear and effective management statement indicating how the company will deal with cases of fraud.
  • Regular review of the fraud prevention plan.


Audit strategy

Most businesses rely upon their accountants or, in some cases, an independent auditor to identify irregularities in their processes and cases of suspected fraud. Rather than hope your adviser can fix everything, be proactive and implement your own simple audit strategy as part of a fraud prevention plan. The following principles constitute a sound audit strategy:

  • Conduct at least two sets of audits of your business each year. The audits do not have to be all-encompassing but should identify what you consider as high-risk areas, for example cash transactions.
  • Conduct at least one extra, unannounced random audit each year of a particular part of the business.
  • Prepare an audit checklist identifying the critical steps in the relevant areas and list any of the indicators that may reveal fraud has occurred.
  • Retain the checklist as part of the annual audit strategy and use it as a reference document for the next audit.
  • If concerned about processes or procedures in the business that may encourage or permit fraud, address them immediately.


How do I report fraud?

Laws of each state in Australia vary on the need to report fraud to the police and other authorities. Any complaint of fraud must be made by a person with the authority to claim ownership of the entity, as such the Managing Director will consider the legal obligation for fraud to be reported, and if the matter is in the best interest of The Company to report.


All incidents of fraud are serious incidents, but other factors such as the recovery of funds may take priority. The Company acknowledges that debt recovery is a competing priority, and the need to be seen as “tough on fraud” is also important. The importance of weighing these factors up properly is the reason that the final decision is left with the Managing Director.


Any report to authorities will include:

  •  A summary of the allegations
  • A list of witnesses and suspects
  • All written statements, declarations, or affidavits
  • A transcript of any interviews conducted with the suspect(s)
  • Electronic media that the interviews were recorded on
  • Documentary evidence


Policy for civil proceedings to recover the proceeds of fraud or corruption

 Fraud in many cases is not only a criminal matter, but creates a civil debt as well. In all cases the options to recover the funds need to be explored. The Company is a business and as such the need to protect our financial stability is paramount. There are a range of civil recovery processes available for recovery.



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