The Fraud Frustration: what can you do to minimise the fallout?

Employment Law Column - 7 February 2017

The difference between a thief and an angel can often come down to opportunity.  For many people, the chance to pocket a few extra dollars can prove to be a temptation all too difficult to resist, regardless of their actual need for the ill-gotten profits — think the office stationery cupboard and the unnecessary need for all those staplers...

In 2016, a former executive of a large US insurance company was sentenced to one and a half years in prison for embezzling US$2.6 million from the company.  The former executive had conspired with a consultant to submit false invoices for services that were never completed, forged the company's chief financial officer's signature to approve the invoices and then funnelled the money back to himself.  This fraud took place despite the executive having a senior position and (one assumes) an accordingly comfortable salary.

Fraud and dishonest conduct can come in all shapes and sizes, which can make it difficult to apply a one-size-fits-all solution.  By way of example, the Fair Work Commission recently considered the (unsuccessful) unfair dismissal claim of an airline employee who had issued numerous unauthorised discounted fares to her friends and family.  In another case, it was found that a street furniture and sign maker's employee was liable to pay damages to his employer for pocketing almost half a million dollars by secretly selling his employer's aluminium and off-cuts to two scrap metal dealers.  There is also the example of the payroll manager who almost single-handedly caused a major Australian whitegoods retailer to collapse after withdrawing almost $20 million to her personal bank accounts, with which she then purchased 44 properties, cars, a motorbike, jewellery and even some shares in the very company she was stealing from!

So what can be done to prevent employee fraud and theft?  It is always best to implement prevention measures, and to look for ways to avoid offering people an opportunity to be tempted to misbehave.  For example:

  1. successfully clearing background checks should be a prerequisite for all new employees, particularly for employees placed in senior positions of trust and responsibility, to ensure there are no hidden skeletons in their closet;
  2. processes which involve handling or processing money or personal information should have multiple levels of accountability in place, so at no point is there only one person responsible for ensuring that all of the funds or data are transferred correctly;
  3. regular risk assessments should be carried out to identify any serious risks of employees exploiting the trust and authority placed in them, and possible measures which could be put in place to mitigate those risks; and
  4. routine training of all staff on your business's codes of conduct, expected behaviours and, where relevant, anti-money laundering, cyber-security and anti-fraud expectations and measures.

Whether it is "permanently borrowing" office stationery or misappropriating millions of dollars, the risk of loss and damage arising from employee theft and fraud is too great for businesses to ignore.  Consider - what are the areas of vulnerability in your business, and more importantly - what are you going to do about it?  


This article is part of a regular employment law column series for HRM Online by Workplace Relations & Safety partner Aaron Goonrey and Lawyer Luke Scandrett.  It was first published in HRM Online on 7 February 2017. The HRM Online version of this article is available here.



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