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Deloitte fighting fraud


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Deloitte fighting fraud

  1. 1. Fighting fraud – a matter for the Board By Frank O’Toole, Partner, Deloitte Forensic Fraud, or the incidence of it, has long been considered a taboo subject within corporate circles. No one seriously wanted to talk about it, let alone admit that it could potentially happen within their organisation. Yet, the reality is, corporate fraud is incredibly widespread. The Australian Institute of Criminology estimates that financial crime costs the Australian economy $5.88 billion each year. That represents about 30% of the overall cost of crime in Australia annually, and this is the direct cost only. If indirect costs such as investigation, prosecution and other collateral costs are taken into account, the cost may be as high as $10 billion annually. In recent times, increased regulatory requirements and scrutiny on governance, good corporate citizenry and executive behaviour, particularly since the collapse of HIH, One.Tel, Enron and Worldcom, have undoubtedly made Boards focus more on fraud risk. So too have standards such as Australian Auditing Standard AUS210 which holds directors and management responsible for preventing and detecting fraud, ASX Principles on Corporate Governance, and the 8000 series on fraud control and corporate governance, just to name a few. Recent developments including organisational and individual prosecutions, enforceable undertakings, commercial sanctions, and the increased media attention to regulators’ activity in this area, have also contributed to managing this risk. Boards with a strong governance focus are now playing closer attention to managing internal fraud. The fraud we are most likely to read about in the media is a fraud by a senior executive or other employee, and this type of fraud is also the most significant in terms of reputation damage. Internal fraud manifests in a variety of ways, the most common including payroll fraud; accounts payable fraud; financial misstatement fraud and manipulation of data provided to regulators; false payments where an apparently legitimate payment to a supplier is made against a legitimate claim but is directed to an employee; supplier kickbacks to an employee in return for preferential treatment; and undisclosed conflicts of interest where business is done with a supplier in which an employee has an interest.
  2. 2. ‘Deloitte’ refers to the Australian partnership of Deloitte Touche Tohmatsu and its subsidiaries. Deloitte, one of Australia’s leading professional services firms, provides audit, tax, consulting, and financial advisory services through around 3000 people across the country. Focused on the creation of value and growth, and known as an employer of choice for innovative human resources programs, we are dedicated to helping our clients and our people excel. For more information, please visit Deloitte’s web site at Deloitte is a member of Deloitte Touche Tohmatsu (a Swiss Verein). As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other’s acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names “Deloitte,” “Deloitte & Touche,” “Deloitte Touche Tohmatsu,” or other, related names. Services are provided by the member firms or their subsidiaries and affiliates and not by the Deloitte Touche Tohmatsu Verein. Liability limited by a scheme approved under Professional Standards Legislation. © Deloitte Touche Tohmatsu. January 2006. All rights reserved. AM_SYD_01.06_016382 More recently, identity fraud has also emerged as an increasing risk to businesses, particularly banks and insurance companies, who are seen as prime targets by fraudsters. And the emergence of some impressive technology is making it easier for individuals to falsify their identity for the purposes of committing fraud. A Deloitte survey of Australian risk managers and professional investigators undertaken last year revealed 74% of respondents believed less than a quarter of all fraudulent acts are detected. Forty-one per cent of respondents believed that less than 10% of fraudulent acts are detected. In relation to internal fraud, it is estimated that over 50% of internal frauds are detected and reported by a co-worker, yet few organisations have a well publicised, well supported mechanism (such as an employee hotline) for staff to anonymously report suspicions of fraud and other misconduct. Seventy-six per cent of respondents to the 2004 Deloitte Fraud Survey believed that internal fraud would be uncovered earlier if companies actively encouraged employees to anonymously report suspicions of fraud. By following some key principles, company directors and management can put in place a program to manage fraud risk. The ten principles to effective fraud risk management: 1. Executive buy-in – Strong support and direction from the executive team is essential. 2. Risk assessment – conduct an organisation-wide assessment to determine high-risk fraud areas and cultural attitudes towards fraud and its prevention. 3. Planning – put a fraud control plan into place to prevent and detect fraud. 4. Communication – ensure entire organisation is aware of responsibility to prevent and detect fraud. 5. Education – educate staff on how to prevent and detect fraud. 6. Reporting – make it easy for employees to report suspected fraud by implementing an independent whistleblower hotline. 7. Confidentiality – guarantee the confidentiality of employees who report fraud. 8. Code of conduct – develop a code of conduct for honest and ethical behaviour. 9. Investigate – call in the experts to investigate fraud. 10. Zero tolerance– let employees, shareholders, suppliers, contractors and customers know that fraud will not be tolerated. For further information visit