The fraud tinderbox and how to avoid fraud in your business

In an economic environment where costs are increasing and inflation is high, a prudent business person will review expenditure and reduce unnecessary costs.  This is particularly the case when they are unable to pass these increases on to their customers.  However, it’s important that the internal controls and fraud prevention measures don’t end up on the cutting room floor.

Here’s why…

Fraud is expensive, but its cost is not limited to its financial impact.  It also breaks down the trust your staff have in one another. The shock experienced by employees when one of their co-workers is involved in and/or instigates a fraudulent act can destabilise and undermine the team making it even more difficult for your business to recover.

Why does fraud happen?

Fraud is the “violation of a position of financial trust” that the person originally took in good faith (Cressey, D (1953) Other People’s Money).

There are three elements to fraud:

  • Perceived pressure
  • Rationalisation
  • Opportunity

No one element in isolation will result in fraud; all three must be present.

Perceived Pressure

Incentives or pressures that motivate a perpetrator to commit fraud will always exist.  For example, people may want to maintain a certain lifestyle or have an addiction that they are funding even when the economy is doing well.


Persons convicted of fraud will explain their actions by stating things like:

“There was no need for it like there was this time.”
“The idea never entered my head.”
“I thought it was dishonest then, but this time it did not seem dishonest at first.”

This rationalisation of dishonest actions in the perpetrator’s own mind permits them to believe their actions are consistent with their personal values.


You can reduce the opportunity for fraud by ensuring your business has effective internal controls and not providing an employee with the ability to override them.  Although this can be challenging due to:

  • the current labour shortages make it tempting to combine job roles; and
  • decentralisation of the workforce due to COVID-19, staff using computers at home and less direct supervision.

5 Tips for minimising fraud in the workplace

  1. Use payment authorisation options (including multi-factor authentication) with internet banking and regularly review your EFT controls. False invoicing and EFT fraud are the most prevalent mechanisms (duplicating payments or purporting to pay the ATO, suppliers, wages etc., but transferring funds to their own bank account);
  2. Review employee leave balances – ensure that holidays are taken at least annually or semi-annually by all staff. Research suggests that it is often when a perpetrator’s routine is affected that the fraud is revealed;
  3. Review your accounting reports on a weekly or monthly basis. Look for unusual or unexpected items;
  4. Maintain strong relationships with third parties – creditors, suppliers, bankers and insurers – collusion may occur between two employees, or an employee and an external party or contractor. However, if you have a good working relationship, third parties may be able to identify and alert you to abnormal activity;
  5. Introduce and schedule regular fraud training for your employees and support programs e.g. setting up a fraud reporting hotline, particularly during economic downturns.

What can Pilot do to help?

Pilot can assist by:

  • providing training in relation to fraud prevention;
  • reviewing internal policies and procedures;
  • undertaking internal control reviews;
  • if you are subject to a fraud incident, we can assist to compile evidence, investigate and report to the relevant authorities.

Learn more

For more information on how Pilot can assist you with mitigating your risk and preventing fraud, contact Jennifer Veitch on or 07 3023 1300.