DIRECTORS are responsible for putting mechanisms in place to counter employee fraud, but many are unaware of the potential risks or how to minimise them, according to a forensic accounting firm
DIRECTORS are responsible for putting mechanisms in place to counter employee fraud, but many are unaware of the potential risks or how to minimise them, according to a forensic accounting firm.
With a trend towards directors taking more responsibility for their organisation and its operations, it was vital that all directors were aware of the issue of employee fraud and what they can do to prevent it, said Warwick Dolman, director of Dolman Bateman.
Employee fraud could have serious consequences such as loss of profit, damage to reputation, reduced operating effectiveness and lower staff morale, Dolman said.
“The increase in directors’ responsibility for minimising fraud risks such as employee fraud has developed as a result of statutory obligations, judgments handed down by the courts and draft legislation,” he said.
“As a result directors need to ensure that the right processes, controls and culture are in place to minimise fraud risk.”
He pointed out that the new auditing standard AS210 also holds directors and management responsible for the prevention and detection of fraud.
Fraud in Australia is estimated to cost $5.8 billion in 2003, while research indicates that companies lose up to 6 per cent of revenue to occupational fraud and abuse each year.
A recent Ernst & Young survey found that nearly 75 per cent of Australian companies have experienced a fraud in the last 12 months.
It found that 85 per cent of the worst frauds were insiders on the payroll, with more than half the perpetrators from management.
This was up from a third in previous surveys, which also found that half of those managers had spent less than a year in that management position.
While the business areas in which fraud was most likely to occur were outside the usual day-to-day view of most directors, he said they were still responsible if fraud occurred through a failure to take steps to reduce the risk.
“For example, an important control measure such as senior management authorisation of purchases over $1,000 may be theoretically in place, but not being followed in practice, giving potential fraudsters a loophole to cheat the company,” he said.
