Workplace Fraud

There are few more serious and potentially damaging events in the life of a business than where fraud takes place. Our legal practice has seen a significant increase in the incidence of fraud being experienced by our clients, and we thought it would be helpful to lay out some of the key issues and processes in case any of our clients should ever find themselves in this dreadful situation.

  • What is employee fraud?

    Section 192E of the Crimes Act NSW (1900) provides that: A person who, by any deception, dishonestly obtains property belonging to another, or obtains any financial advantage or causes any financial disadvantage, is guilty of the offence of fraud.

    There are also federal offences relating to workplace fraud, and so ultimately both the state and federal police may become involved in a matter of this sort.

  • What are the penalties for fraud charges?

    The maximum criminal penalty is NSW is 10 years’ gaol. Those who engage in a complex pattern of deceitful conduct over an extended period of time are more likely to receive a lengthy gaol sentence than those who perhaps committed a one-off or spur of the moment act, even if the amount of the one-off event is greater. This is because it is the deception and dishonesty itself, rather than the quantum involved, that is most important from a criminal law perspective. Under federal law there are also fines that may exceed $200,000.

  • How is workplace fraud usually perpetrated?

    From the cases we have seen, fraud most usually occurs in circumstances where there is a lack of accountability and cross-checking in the finance arrangements of a business. Often the business owner will be so focused on client relationships and business development, that they overlook supervising their back of house adequately. Often a single person will be trusted with authorising bank transactions online, or in a professional services context, cheques will have only one signatory and not require approval by at least two senior company officers.

    A common scheme involves an employee raising false invoices. The services referred to in the invoice may have some relevance to the activities of the business, and therefore have the appearance of legitimacy. Where the invoice amounts are not large, the arrangement may go undetected for many months or even years. In some instances, the co-operation of other employees in the scheme of deception may be obtained through bribes. Often there will be at least one accomplice.

    Those who engage in this activity often have a drug or gambling addiction that fuels their need for cash. Employers should be vigilant regarding staff who may exhibit unhealthy signs in these areas.

  • What to do when you suspect or detect fraud?

    If you suspect fraud may be going on, but have no concrete evidence, you may consider urgently hiring a forensic accountant to review the activities of a suspicious employee. It is also possible to get a Civil Search Order from the Supreme Court, to seize laptops and other potential evidence, but this is very unusual. Our firm has successfully used this strategy.

    Where the concern is more than a mere suspicion, it is strongly recommended that you advise the NSW Police immediately. They have the resources and experience to know how to best handle these situations, and they want to exercise the element of surprise in dealing with the suspect.

    You will need to give consideration to the ongoing employment of the employee. In the absence of concrete proof, and subject to Police input, you could consider standing down the employee on full pay to allow time to investigate the matter, before then confirming a decision to terminate their employment.

    Where the amounts stolen are very substantial, some employers consider the question of how they can best recover the money stolen, and put that as their top priority. In those circumstances, there may be benefit in getting an urgent Freezing Order over the assets of the suspect before you stand them down. A freezing order can stop a person from selling property, or transferring funds out of bank accounts. This may be the only way to protect against an employee transferring monies offshore. Atkinson Vinden has successfully obtained Freezing Orders to prevent the transfer of assets offshore.

  • Protecting Business and Client Relationships

    Another crucial consideration is the interests of clients and other business relationships. This will particularly be the case where the company holds funds on trust for others, such as in legal, accounting, or financial services contexts.

    Clients should be notified as soon as practicable. Where the funds are unable to be recovered from the fraudster, it may become the obligation of the company to reimburse clients who have been defrauded, subject to any insurance arrangements that you may have in place.

    Where serious fraud has occurred, it may be beneficial to get advice from a PR company regarding the best way to handle the situation. Trust is hard to gain but all too easy to lose, so careful PR planning is needed. The prevailing wisdom is that it is better for your client to hear about the situation from you than from the Police or some third party source. Being proactive, open and honest, is by far the best way to deal with the fallout from these unfortunate situations.

  • Strategic Thinking

    The reality of the threat of workplace fraud in modern workplaces means that all companies need to engage in strategic thinking around this risk, and have appropriate steps in place to minimize the harm.

    Some simple steps can make a great difference:

    • require two separate senior signatories for any payments
    • conduct regular audits of invoices
    • change the accounting structures from time to time as this will unsettle anything untoward which may be going on
    • remind staff of the serious consequences of fraud, perhaps by use of workplace signage regarding the serious penalties involved.
    • install security videos, making sure that there is signage about it, and that the cameras are visible to staff.
  • We can help you

    We have helped a number of clients who have discovered fraud in their workplace. We provide urgent, strategic advice tailored to the situation and sensitive to the nuances of your business and client base. If you have any concerns, please call us on (02) 9411 4466, and we can work through these complex issues with you.