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Explore the fraud problem

Let’s unpack what fraud is, why it’s such a challenging problem and why we need to do our best to counter it.

 

What is fraud

The Commonwealth Fraud Control Policy defines fraud as ‘dishonestly obtaining a benefit, or causing a loss, by deception or other means’ (see paragraph viii of the Fraud Control Policy).

Fraud against the Commonwealth may include (but is not limited to):

  • theft
  • accounting fraud (e.g. false invoices, misappropriation)
  • misuse of Commonwealth credit cards
  • unlawful use of, or unlawful obtaining of, property, equipment, material or services
  • causing a loss, or avoiding and/or creating a liability
  • providing false or misleading information to the Commonwealth, or failing to provide information when there is an obligation to do so
  • misuse of Commonwealth assets, equipment or facilities
  • cartel conduct
  • making, or using, false, forged or falsified documents
  • wrongfully using Commonwealth information or intellectual property.

Fraud requires intent. It requires more than carelessness, accident or error. When intent cannot be shown, an incident may be non‑compliance rather than fraud.

A benefit is not restricted to a material benefit, and may be tangible or intangible, including information. A benefit may also be obtained by a third party.

Explore the Commonwealth Fraud Control Framework to learn more about the Commonwealth’s definition of fraud.

 

What fraud looks like

Cases of fraud against government programs reveal fraudsters have common traits:

  • Deception – making others believe something that is not true.
  • Recklessness – acting without care, responsibility or regard to the consequences of their actions (this includes a disregard to the harm caused to others)
  • Concealment – preventing actions from being seen or known about
  • Fabrication – inventing or producing something that is false.
  • Impersonation – pretending they are another person or entity.
  • Coercion – influencing, manipulating or bribing another person to act in a desired way.
  • Exploitation – using something for a wrongful purpose.

Some studies have analysed the characteristics of the people who commit fraud to build a profile of a typical fraudster and identify risk profiles for individuals.

The Association of Certified Fraud Examiners found it is 13 times more common for an employee to commit fraud compared to an owner or executive. However, the median loss through fraud committed by owners or executives is 10 times larger than fraud committed by employees.

More importantly these studies also show us that all individuals are capable of committing fraud. As the case study demonstrates, with the right mix of pressure, opportunity and rationalisation, even trusted colleagues and friends can be tempted to commit fraud.

Use the Fraudster Personas to understand different methods individuals use to commit fraud and how you can stop them.

Use the Case Study Register to find more examples of fraud.

 

Case study

A long serving and well respected American Department of Defense employee exploited a vulnerability in the payroll system for over 17 years to defraud the federal government out of $1.4 million.

After pleading guilty to the fraud charges, Michelle Holt hugged the federal prosecutor in an expression of remorse and guilt for breaching the trust of her long time employer and colleagues. Holt was sentenced to four years in prison. This case shows that even trusted colleagues and friends are capable of committing fraud.

 

Why people commit fraud and the drivers for fraud

Criminologist Donald R. Cressey identified three conditions that must be present for an ordinary person to commit fraud:

 

Pressure

People are pressured to commit fraud for many different reasons. For example, they could be:

  • lured by greed and an easy financial gain, or
  • pressured by negative influences such as loss of employment or status, gambling addictions, health problems or crippling debts.

 

Opportunity

People must have the opportunity to commit fraud. This is generally because an entity has weak countermeasures such as a lack of oversight. Often the fraud starts small and then increases once the opportunity is confirmed.

 

Rationalisation

People must be able to rationalise the act of fraud in their own mind. Most people who commit fraud are first-time offenders with no criminal history.

Therefore, they find a way to make it okay to perform the fraudulent act. Such rationalisations include:

  •  “I’ll pay it back later”
  •  “No one will even notice it’s gone”
  •  “I deserve it”
  • “I pay enough tax”
  • “I’m doing it for my family”.

The specific rationalisation may change or become less relevant as the fraud continues or increases. Sometimes, the rationalisation is replaced with increasing feelings of guilt and shame.

 

An image of the fraud iceberg

Why fraud is such a challenging problem

 

Fraud is often underestimated and unchecked

It is a hidden threat that is deliberately concealed and often overlooked by its victims. Fraud and error, including unreported fraud, could be costing the Commonwealth as much as $100 million per day. This cost is equivalent to funding the Commonwealth’s Drought Community Support Initiative for more than a year. 

 

Fraud is common

According to the Australian Institute of Criminology, there are over 100,000 instances of reported fraud and corruption against the Commonwealth each year. The prevalence of fraud makes it a challenging and a costly problem for governments to deal with.

 

Those who commit fraud are diverse, creative and adapt quickly

They range from people taking advantage of opportunities to those who actively look to exploit government programs. Fraud is a profession for some. Their job and expertise is to examine government programs and find creative ways to exploit those programs.

 

Serious and organised crime is involved

Criminals use advanced approaches and scheme with professionals, such as accountants, to exploit multiple government programs.

 

Fraud is becoming increasingly complex

Criminals and scammers are adopting new technology and more advanced methods to commit fraud.             

 

The impacts of fraud, why we should care and how it affects us

Fraud reduces the government’s capacity to deliver services and support for all Australian citizens. Every dollar lost to fraud is a dollar not invested in Australia’s healthcare system, education system, economy or public safety.

Being a victim of fraud can be a traumatic experience. Those who rely on government services such as the elderly, the vulnerable, the sick and the disadvantaged are often the ones most harmed by fraud. Fraud can have a devastating and compounding effect on these victims. It can amplify the disadvantage, vulnerability and inequality they suffer. Fraud can also cause lasting mental and physical trauma for victims and irreversible impacts for families and communities.

Fraud also reduces public trust in government, undermines Australia’s institutions and can damage our industries, our security and our environment. 

Read more about different impacts of fraud.

Case study

A Victorian man falsely claiming to be a qualified in vitro fertilisation (IVF) specialist performed a range of treatments on 30 victims. The man who never studied medicine deliberately deceived his victims, defrauded them of $370,000 and performed invasive procedures on their bodies.

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