In tough times the risk of employee fraud rises - be prepared!

29th March, 2012

What is the issue?

Avid readers of the newspaper may have noticed a recent increase in the number of cases before the courts involving employee fraud. From the alleged $16 million swindle of Queensland Health to the alleged misappropriation of almost $20,000 from a Sydney pastry shop, these examples highlight that in tough economic times the incidents of employee fraud escalate. While these may be extreme cases, your company is not immune!

How can I prevent employee fraud?

Preventing fraud is all about internal controls. Simple procedures such as reference checks of prospective employees, proper authorisation of all accounts payable, conducting audits, maintaining a division of duties and cultivating a "whistleblower" culture where staff feel comfortable reporting anomalies to superiors are all measures which reduce the likelihood of employee fraud occurring within your organisation.

What should I do when employee fraud is discovered?

When employee fraud is uncovered, a timely response is required in order to recover your money. The major risk is that the fraudulently acquired funds may be dissipated, concealed, moved offshore or otherwise dealt with in such a way as to frustrate any attempts at recovery.

Furthermore, in most cases where employee fraud is detected, it is usually only the tip of the iceberg. Often "trusted" employees have been misappropriating funds for a number of weeks, months or even years. This can have disastrous consequences for any organisation.

Therefore, the first action required is a thorough investigation of all accounts over which the employee could exercise control to determine the true extent of the fraud. This investigation may require the assistance of third parties such as forensic accounting experts.

In fraud cases, our clients often ask questions such as, Should I terminate the employee's contract? Should I confront the employee? Should I report this matter to the police? There is no easy answer to these questions and it ultimately depends on the particular situation and the particular strategy selected. While you may feel angry and betrayed, now is not the time for rash actions and jumping to conclusions as premature termination of employment without adequate evidence of wrongdoing may be grounds for an unfair dismissal claim. Rather, a considered approach is required if any money is to be recovered in the long term.

Can I get my money back?

In the best case scenario, the fraud is detected and investigated before the employee has had a chance to spend the funds or otherwise misapply them. However, this is not always possible and depending on the amount of money misappropriated, there are two sources of urgent injunctive relief which often lead to an ultimate recovery.

1. Mareva injunctions (freezing orders) effectively freeze the assets (such as bank accounts or superannuation funds) of the person to prevent the asset from being removed from Australia or otherwise accessed or disposed of in an attempt to frustrate any potential recovery by the employer.

2. Anton Pillar order (search order) to permit the company or another person to enter the premises and inspect and seize documents, records and other evidence (such as computer files), where there is risk such things may be destroyed and where that information may help in locating or tracing the stolen funds and provide evidence of the fraud when final relief is sought.

If the funds have been transferred into the name of others or held in other assets, it may nonetheless be possible for them to be traced, sold or otherwise transferred in order to effect an ultimate recovery.

Your next step...

Employee fraud poses an ever increasing threat to the operations of all businesses and in our experience, the destructive effects of employee fraud will be felt by the organisation for years to come. Where fraud is detected, a timely investigation and a practical strategic response from someone with experience in this area of law is required in order to maximise your chances of recovering the defrauded funds.

At Scoglio Law we have experience successfully recovering misappropriated funds in cases of employee fraud. If you believe your company has been the subject of employee fraud, or simply want more information about how our processes can work for you, please contact Tony Scoglio of Scoglio Law on (07) 3833 2100 or email


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