Identifying and Responding to Risks of Serious Fraud in Australia and New Zealand

By Sakurai, Yuka; Smith, Russell G | Trends & Issues in Crime and Criminal Justice, December 2003 | Go to article overview

Identifying and Responding to Risks of Serious Fraud in Australia and New Zealand


Sakurai, Yuka, Smith, Russell G, Trends & Issues in Crime and Criminal Justice


In their Trends and Issues paper, "Red Flags of Fraud", Grabosky and Duffield (2001) identified a number of warning signals for fraud, or anomalies. While the existence of anomalies is not always indicative of criminality, they do signify heightened risks that should be investigated further. Drawing upon data collected for the Australian Institute of Criminology and PricewaterhouseCooper's study, Serious Fraud in Australia and New Zealand (2003), this paper identifies those circumstances or anomalies that were present in the cases of serious fraud examined. Understanding these factors will help those at risk of fraud victimisation to take action to prevent financial crimes from being perpetrated or to detect instances that have already begun at the earliest available opportunity.

Acting Director

Toni Makkai

The Australian Institute of Criminology and Pricewaterhouse Coopers (AIC/PwC) recently examined a sample of Australian and New Zealand 'serious fraud'1 cases within the calendar years 1998 and 1999. For the two years in question, the total amount in respect of which offenders were sentenced was $260.5 million, while the total actual loss suffered by victims was $143.9 million. Details on sample and methodology are provided in the Serious Fraud study (Australian Institute of Criminology and Pricewaterhouse Coopers 2003).

Identifying Anomalies

Recent studies have identified a number of circumstances that arise regularly in cases of serious financial crime (e.g. Ernst and Young 2002, KPMG 2001 and 2002, Krambia-Kapardis 2001). Part of the AIC/PwC study (2003) involved the examination of how cases were detected. Internal audit was the most frequently identified manner of discovery (19%), followed by cases in which offenders simply failed to make payments to creditors or investors (13%) -thus leading to complaints being made. A number of cases were also discovered during police investigations (11%) or inquiries by law enforcement agencies (10%). Despite research to the contrary (Association of Certified Fraud Examiners Report to the Nation (2002)) relatively few cases involved whistleblowers.

Internal auditing generally led to the discovery of accounting anomalies resulting from fraudulent transactions, such as those carried out by a bank employee or a company's financial manager. Behavioural anomalies associated with professional misconduct, such as professionals failing to make payments due to their clients, were detected often when the clients reported this to the police or other regulatory bodies.

While a large number of offenders failed to take effective measures to conceal their misconduct, it was apparent that many instances were difficult to detect. The mean period between the first offence and the last offence committed by a single offender was approximately two years, and the mean period between the last offence to the date of detection was an additional 10 months. In one instance, offences were committed over a period of almost 13 years without the illegal conduct being discovered.

Understanding Anomalies

What, then, are the anomalous circumstances that give rise to the commission of serious fraud and to its discovery?

Prudential Failures

* Poor investment controls

Where funds are invested either by corporations or individuals, it is critical for adequate steps to be taken to investigate the legitimacy of the entity to whom funds are provided and the adequacy of securities. Sometimes investment funds will be lost in so-called advance fee schemes in which capital is not at risk but supporting advance payments are stolen. This is the gist of the many West African-based schemes that currently operate globally. On other occasions, the target is the investment fund itself which can be misappropriated by dishonest finance providers or lost if funds are placed in unacceptably risky ventures. In both cases, risks are created through investors failing to assess the legitimacy and security of individuals or organisations with whom investment funds are placed. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Identifying and Responding to Risks of Serious Fraud in Australia and New Zealand
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.