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Greed and technology create new fraud opportunities

Media Release

24 August 2000

Fraud currently costs the community in excess of $3.5 billion, and last year alone cost the Commonwealth Government over $150 million. The prevention and control of fraud are two of the great challenges for Australia now, and in years to come, according to the Director of the Australian Institute of Criminology, Dr Adam Graycar.

In his keynote address delivered today at the Australian Institute of Criminology conference on Preventing and Controlling Fraud, Dr Graycar said that success in dealing with fraud will enhance Australia's business reputation, save resources in the public sector, and reduce the personal hardship that fraud causes to countless victims each year.

In his speech, Dr Graycar said that controlling fraud involved three sets of challenges that involved changes:

  1. Culture changes: this involves more reporting and open methods of dealing with fraud
  2. Legal changes: this involves progress with the model criminal code which aims at harmonising laws relating to fraud, and which is currently being addressed
  3. International changes: this involves international co-operation and mutual assistance.

Dr Graycar identified three ways to work on the limitation of fraud. These involve:

  • Reducing the supply of motivated offenders
  • Protecting and educating the suitable targets
  • Limiting opportunities by making the crime more difficult to commit

This is enormously complex, as greed is an common human condition. In Australia there are many types of fraud and new opportunities for deceptive conduct arise all the time.

Scams and cons have been around as long as commerce itself, but now, many are facilitated by digital technology.

"It is not helped," said Dr Graycar, "by organisations in which Board members and CEOs fail to show leadership in creating a culture in which fraud is not tolerated. If chief executive officers and managers at all levels have a commitment to fraud prevention and understand how it may be achieved, this will provide a foundation for other employees to support the notion of fraud control".

In Ernst and Young's survey of large organisations, for example, less than one third of the Australian respondents considered that their directors had a good overall understanding of their business for fraud prevention purposes. The study also found that although nearly half of the organisations surveyed had a fraud reporting policy in place, fewer than half of those said that their staff were aware of the policy.

Most fraud takes place within organisations and a 1999 KPMG survey found that one third of organisations surveyed failed to report frauds to the police, many instead preferring to deal with the matter internally and or by dismissing the individual in question. Other surveys have found that a belief that the matter was not serious enough to warrant police attention, a fear of consumer backlash, bad publicity, inadequate proof, and a reluctance to devote time and resources to prosecuting the matter.

The use of fraud reporting 'hot lines' may be another way of persuading employees to report fraud to management, although in Ernst and Young's survey, more than fifty per cent of respondents were opposed to the idea with most opposition coming from company directors.

"This", said Dr Graycar "demonstrates that Australian business can be an easy target because procedures and commitment are inconsistent and not vigorously enforced. It is now widely accepted, he said, that effective fraud prevention strategies must, in the first instance be generated from upper-level management", he said.

A 1999 survey by KPMG found that only twenty-two per cent of fraud was carried out by parties external to the organisation, and the rest occurred internally. The highest proportion of fraud carried out by outsiders related to theft of inventory and plant, forgery of cheques, and credit card fraud.

Fraud against the Commonwealth Government is different again, with about 6 per cent (in dollar value) being perpetrated internally, and 94 per cent coming externally from inappropriate claims for benefits and payments.