Crackdown on staff fraud
Business fraud is on the increase in Australia with small businesses the most vulnerable to some sort of employee fraud. Jill Pullen spoke to Joe Kaleb, CEO of online tax and business management company Australianbiz, about how to reduce the incidence of staff fraud.
The Christmas holiday period is tyBuiness owners often hand over control of various tasks and or the business to more junior or temporary staff and as such become careless when it comes to security procedures.
Joe Kaleb (Kaleb says business owners can protect themselves by developing reliable accounting and other internal controls and by constantly monitoring the effectiveness of these controls.
Evidently here are the most common frauds that are comitted by employees today and suggested controls that can be put in place to prevent the crime from taking place.
Theft of money
Frauds that involve money can be costly for small businesses and in some cases can lead to the closure of the business, says Kaleb.
Common examples of staff fraud include stealing cheques sent by debtors directly from the mail, forging an endorsement on a cheque, stealing cash from the register and falsifying signatories and amounts on cheques issued by the business.
To reduce the likelyhood of such fraud, Kaleb recommends the following controls be installed:
* Separation and rotation of duties between cash/cehque handling, preparing the banking records and recording in a general ledger;
* Have at least two people sign all cheques;
* Regualr observation of employees working with cash or receipting debtors;
* Issue pre-numbered receipts for all monies collected and recorded in the debtors ledger. This notifies the customer that their money has been received and recorded;
* Daily banking of cash and cheques.
Electronic banking fraud
Electronic banking is used increasingly by businesses for payroll, supplier payments and tranfers of funds between bank accounts.
"Whilst this is a more efficient way of dealing with these types of banking transactions, business owners often fail to implement appropriate safeguards," says Kaleb.
"Banks will not reimburse businesses from losses arising out of electronic banking fraud where the business has contravened certain conditions, for example, not keeping the password in a safe location."
Suggested controls against this include:
* Maintaining security over passwords (ie ensuring they are input without others observing, are not written down and are changed regularly);
* Setting appropriate limits on the dollar value of transactions.
* Confirming security arrangements with the bank on a regular basis.
* Ensuring bank authorities of terminated employees are removed immediately;
* Installing virus and firewall protection to reduce the risk of access by third parties;
* Ensuring that staff immediately delete any unsolicited or spam emails that request the banking details of the business.
Payroll Fraud
This type of business fraud is most common amongst shift workers who are not paid a set amount each week.
"Common techniques [used by such employees] include extending the number of hours worked and type of work done on time sheets, manipulating clock on and off times...and artifically increasing sales on which commissions are paid," says Kaleb.
"Other common payroll frauds include inserting ghost employees on the payroll and when employees lie about their experience and qualifications."
To reduce the incidence of this type of fraud Kaleb recommends businesses obtain independent verification of the qualifications of employees by checking their references and confirming their experience from previous employers. Companies should also pay employees by cheque or direct deposit into specific accounts so transactions can be easily traced in the event that a fraud is uncovered, and conduct regular performance reviews on all employees that are listed on the payroll register.
Theft of stock
Common examples of theft include false stock write-off's in the accounting records, altering stock-take records, and falsifying purchase orders or invoices to reflect the stock stolen.
Suggested controls to protect against this, according to Kaleb, include separating and rotating duties of staff in the ordering, receiving and recording departments and conducting proper and regular stock takes using pre-numbered stock sheets. Purchase orders should also be crosschecked to the invoice and appropriately authorised.
Billing schemes
A ty"These schemes attack the payments system of the business and occur as most payments are made by cheque so there is limited scope to steal cash," says Kaleb.
To prevent this from happening Kaleb recommends the following strategies:
* Separation and rotation of duties between the person making the purchase orders and submitting the orders for payment, the person preparing the cheques and banking journals and the person recording the transactions in the accounting records;
* Invoices should be approved by one person and that person should not draw the cheques or have the authority to order goods or services.
* Use pre-approved suppliers - this limits the opportunity of using a fictitious business to conduct the fraud. Any invoice from a supplier that is not pre-approved should be verified before payment is made.
Fraud penalties
Where an employee steals, is dishonest or commits fraud at their place of employment, this will often justify dismissal, or in more serious cases summary dismissal. Where the act also constitutes a criminal offence the employee may be liable for a fine of up to $7,500 or up to 10 years imprisonment depending on the offence.
If the employer believes an employee has committed an offence they should first check the employee's contract to see under what circumstances it can be terminated. Where an employer terminates an employee the termination must be fair and based on a reasonable investigation.
The Industrial Relations Commission has ruled that for the termination of employment to be valid a proper investigation must be conducted by the employer. Each case must be judged on its own circumstances, consider the type of offence, its impact on the workplace, and its effect on the employee carrying out his or her employment.
In the majority of cases where a proper investigation has taken place and found that a crime has been committed termination will be justified. However, only in rare cases will summary dismissal be justifiable. For example, in a position where honesty and good faith were required, such as a bank manager, a crime that involved fraudulent use of another's bankcard would justify termination. This situation would change for small business' if the Federal government's Workplace Relations Amendment (Work choices) Bill 2005 is passed. This Bill will exempt small businesses, that are constitutional corporations, from the unfair dismissal laws and oust the jurisdiction of the Industrial Relations Commission in this area.
The cost to small businesses for having an employee who commits an offence can be great. The employer will have to conduct an investigation which is very costly and may have to continue to employ the worker, unless they can prove, on the balance of probabilities that the employee is guilty. The allegation of an offence being committed by an employee, may also affect the relationship between the employer and employee, the reputation of the business and desirability of customers and other workers to attend work.
Source: McCullough Robertson Lawyers
Fraudsters, or more specifically credit card fraudsters, have nearly cost Australian-based designer Virginia Poppe her business. But far worse than that, they have almost claimed her sanity as well. Poppe, the designer behind Sydney-based label Silk Attraction, has spent more than two years entrenched in the legal system after accepting three orders from an Indonesian-based consortium in 2003. The orders were valued at more than $22,000 and made online. While Poppe claims the transactions were authorised by the credit card providers, the card submitted for payment was later found to be fraudulent. Unfortunately for Poppe, the orders had already been dispatched by the time the payments were reversed.
Worse still, due to disputes over the outstanding monies, Poppe was later labelled a bad debtor and was herself placed on a merchant fraud report meaning she was no longer authorised to accept credit card payments through her business.
"I'm not sure what an authorisation means anymore, like most people I've spoken to, I thought it meant your transaction was secure."
While by some miracle, Poppe has managed to struggle through the legal wranglings without bankrupting herself, she has been forced to pay a huge price - personally and professionally.
In fighting to clear her name Pope estimates she has spent "hundreds of thousands of dollars".
"They have got me by the jugular and I'm screwed whichever way I turn. This whole process has taken a huge toll. It has cost me hundreds of thousands of dollars, not to mention the stress involved. My relationship split up and my business has suffered. What upsets me the most is the toll it has taken on my parents."
Virginia Poppe