Security Briefing – 23 April 2009

Organisations should be vigilant of the heightened risk of employee fraud due to increasing pressures during the global financial crisis. Deloitte Forensic has estimated that the total cost of fraud to the Australian economy could be as much as $10 billion a year, with a significant degree of detected workplace fraud remaining unreported. According to a current Ernst & Young global fraud survey, 85 percent of fraud is committed by employees.

Three elements are necessary for an individual to turn to fraud – opportunity, incentive/pressure (motivation) and rationalisation (as hypothesised by Donald Cressey). During difficult economic times all three elements increase dramatically. Mass redundancies and cost-saving measures (such as security budget cuts) open up opportunities for fraud and industrial espionage as gaps appear in control systems. The incentive for an employee to commit fraud and espionage also rises as personal finances become tighter, making cash offers for confidential information more tempting. As others lose jobs, employees feel under increasing pressure to commit fraud to aid their own financial or job security prospects. The rationalisation to commit fraud or industrial espionage also increases as more employees become disgruntled and morale dips due to lower-than-expected pay and bonuses. In such situations, workers can persuade themselves that they have received less than they deserve, so are entitled to extra money gained through fraudulent activities.

International Operations Group – Recommendations

Employee fraud continues to be a major problem with too few organisations enforcing comprehensive fraud monitoring and detection programs. With fraud levels rising, it is more important than ever that organisations have secure and robust internal controls and risk management systems. Businesses and government departments are advised to expand their teams working on fraud prevention and detection to prevent excess losses and be in a strong position for the economic recovery.

Steps in the establishment of a comprehensive anti-fraud program include reviewing current internal security procedures, conducting risk assessments, implementing fraud monitoring, detection and control procedures, and promoting an anti-fraud stance. Once a fraud system has been installed, it is vital that it is regularly reviewed and maintained to ensure that it remains effective.

The Australian Auditing Standard AUS210 places the responsibility for the prevention and detection of fraud with an organisation’s management but it should not only be a legal obligation for managers to commit to anti-fraud programs. Adopting an anti-fraud ethic across a whole organisation is vital in ensuring the success of an anti-fraud program. Dr. John Demartini, a world leading human behavioural expert, advises that leaders need to inspire their workforce to ensure that the correct values filter through the whole organisation. Demartini states that fulfilled and inspired employees will be dedicated to the ethics and processes of an organisation. As such, if employees’ core values associate with anti-fraud ethics, then anti-fraud processes will be effective.

In these harsh economic times, it is more important than ever for leaders to increase motivation levels and promote anti-fraud values within their workforces. In such a way, anti-fraud values, tools and processes need to be actively embraced by the leaders of an organisation for employees to follow suit. Thus, the establishment of a comprehensive anti-fraud program and stance from the top down will maximise the probability that anti-fraud ethics and processes will be adopted throughout an organisation’s workforce.

International Operations Group – Services

International Operations Group provides intelligence and security support for corporate and individual clients across the globe. Our team includes experienced specialists in fraud detection, fraud recovery and fraud risk management. Please email intel@interopsgroup.com for further information.

For more information on our fee-based intelligence updates or bespoke reporting, please email Rob Stevenson - rob@interopsgroup.com. Rob can also be telephoned on +61 [0] 420 244 909.