Australian Institute of Criminology

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Introduction

The current Commonwealth guidance (Resource Management Guide no. 201 Preventing, Detecting and Dealing with Fraud, issued by the Minister for Justice) notes that:

Fraud against the Commonwealth is a serious matter for all Commonwealth entities and for the community. Not only is it a criminal offence, but fraud reduces funds available for delivering public goods and services, undermines the integrity of and public confidence in the government and can place public safety at risk. The Australian community rightly expects that entities and officials acknowledge and fulfil their responsibilities as stewards of public funds and make every effort to protect public resources (Minister for Justice 2014: 5).

Fraud is a broad concept that covers a range of criminal conduct involving deception and dishonesty to obtain an advantage or unjust benefit. Dishonesty is the key attribute that distinguishes fraudulent from innocent conduct. Rather than defining dishonesty in legislation, it is usually a matter of fact to be determined at trial. Fraud against the Commonwealth is defined as ‘dishonestly obtaining a benefit, or causing a loss, by deception or other means’ ((Minister for Justice 2014: 8 ). Fraud against the Commonwealth may be committed by individuals who do not work for government entities (external fraud) who seek to claim benefits or to obtain some other financial advantage dishonestly, or by those employed by entities, including public servants and contractors (internal fraud).

The impact of fraud goes beyond financial loss, as victims of fraud may suffer social, emotional and psychological impacts. Non-individuals, such as businesses and government entities may also suffer from more than just financial losses—they may experience loss of information and harm to their integrity and reputation. In addition, there may be wider consequences of fraud that include risks to public safety and security. A recent survey reported that 28 percent of organisations that had experienced fraud also experienced damage to employee morale, while 19 percent of organisations noted that they had suffered reputational damage due to the fraud (PricewaterhouseCoopers 2012).

In the public sector, risk is increased because of poor risk management, inadequate internal controls and deficient recruitment practices that enable public servants and government contractors to act dishonestly (Lindley, Jorna & Smith 2012). Fraud risks can also increase when governments introduce new programs, provide new benefits, create new taxes or engage in procurement without the necessary controls being in place.

Higginson (2011), in a study of a sample of Commonwealth fraud cases referred to the AFP between July 2000 and June 2007 found that Commonwealth public sector entities offered vastly different opportunities for fraudulent behaviour from those existing in business environments, as public sector fraud can be perpetrated by anyone from any socioeconomic background and by those with or without specific skills and abilities.

Accordingly, it is necessary to have fraud control measures that relate to the specific functions and risks that Commonwealth entities demonstrate. In 2014, new Guidelines on preventing, detecting and dealing with fraud against the Commonwealth were introduced (Minister for Justice 2014). These seek to

protect public resources, including information and property, and protect the integrity and good reputation of entities and the Commonwealth. This includes reducing the risk of fraud occurring, discovering and investigating fraud when it occurs, and taking appropriate corrective actions to remedy the harm (Minister for Justice 2014: 8).

Prior to the introduction of the new Guidance, similar Guidelines were in place that entities had to follow between 2011 and 2014 (AGD 2011). These earlier Guidelines governed fraud control within the Commonwealth during the period covered by the present study and covered aspects such as risk assessment and the use of fraud control plans, fraud awareness and training, detecting, investigating and responding to fraud, and information management and reporting.

Part of the reporting requirements imposed on entities were obligations to collect information on fraud experienced each year and to provide it to the AIC for analysis and reporting. All incidents of suspected fraud, incidents under investigation and completed incidents, whether the fraud was proved or not and whether the incident was dealt with by a criminal, civil or administrative remedy, are required to be reported to the AIC on an annual basis. The present report contains the results of this reporting for the years 2010–11 to 2012–13. Details of the methodology used to gather the information, response rates and how the data were analysed are set out at the end of this report.

The information in this report is presented in five distinct sections covering:

  • key trends in fraud incidents experienced by entities over the three year period;
  • typologies of fraud incidents, descriptions of fraud targets and fraud modus operandi;
  • the cost of fraud to entities, focusing on the amount initially lost due to fraud and amounts recovered;
  • detection and investigation of fraud incidents; and
  • prevention and fraud control measures employed by Commonwealth entities.

The results relate to suspected fraud incidents identified by reporting entities in the last three financial years 2010–11 to 2012–13.