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At a cost of over $2 billion for Australian businesses in 2023, fraud is ever-present. As a broker, you're well-positioned to help save your clients from falling victim.
Fraud is a major issue for Australian businesses of all sizes, particularly small-to-medium enterprises (SMEs). From fake invoices to identity fraud, phishing emails and other online scams, it’s getting increasingly tougher for businesses to protect themselves against fraudulent behaviour.
This is where brokers can play a role in helping clients detect common fraud scenarios in commercial lending.
The cost of fraud
The annual cost of fraudulent behaviour to both brokers and SMEs is massive.
The latest ACCC data collected from Scamwatch, ReportCyber, the Australian Financial Crimes Exchange (AFCX) and ASIC revealed losses from financial crime in Australia upwards of $2.7 billion in 2023.
The True Cost of Fraud study found, for every dollar that goes to fraud, Australian businesses lose an average of AUD$3.68 (AUD$2.96 for retailers and AUD$4.21 for financial institutions).
What does fraud look like?
Christopher Cam, Head of Credit – Portfolio Management at Banjo, says the types of fraud brokers need to keep on their radar are growing in scope and complexity at a cracking pace.
“Creating fake invoices to skim money out to different accounts and payroll fraud is increasing," he cautions. “And where you have people in your business dealing with customer data – are there enough internal controls and system security to ensure that customer data is not leaked to the dark webare? These are things that brokers need to keep in mind when ensuring they're not being de-frauded themselves or talking about fraud with their clients.”
As an example, Christopher points out the prevalence of compromised business email addresses from executive teams.
“They usually have a flavour of urgency to it, saying something like, 'This is the CEO. I'm stuck at a conference, I wanted to call you, but I need you to go pick up some gift cards because I'm going to give them out as prizes tonight at a function. So sorry to put this on you, but don't worry, you'll be reimbursed. Just submit the expense claim to HR'.”
Christopher says, in his experience, these kinds of email scams usually target new employees.
“They feel silly going to another colleague or HR to check that it’s legitimate. They just think, 'Oh, well, it's just buying gift cards, and the email itself seems very plausible'.”
“When I spoke to a person it happened to, I asked at what point did you think that this didn't look right. The person said they did the first transaction, and then they were contacted again and asked, 'Can you just send a copy of the back of the cards, the digits as well? That's when they thought, 'Wait, this doesn't make sense anymore'.”
Five ways brokers can help minimise financial fraud
There’s a range of approaches that can help minimise fraud, but Christopher highlights five strategies that have been proven to detect fraud as soon as it occurs and minimise the chance of it happening again in the future.
1. Find a reputable external auditor
Appoint external fraud detection and prevention experts to conduct an audit of your business, including regular penetration testing.
Not only will an external auditor be able to see if fraud is already happening, but they can also give you a strong understanding of where you’re at risk of it occurring. And knowing your weak spots perfectly positions you to come up with an effective fraud prevention strategy.
For brokers, external audits are a powerful way to verify the accuracy of financial statements when preparing a loan application on a client’s behalf.
2. Keep your financial reports up to date and accurate
Regularly reviewing accounting records and conducting random internal audits allows you to stay on top of your finances and spot transactions that seem suspicious or regular payments being made to accounts where they shouldn’t be being made.
For brokers, having a discussion with your clients about internal audits is a great way to help educate them on the importance of accuracy in their financial reporting.
3. Introduce an anti-fraud/ethical conduct policy
Having an anti-fraud policy that outlines acceptable and unacceptable behaviour is fundamental to minimising fraud. It establishes clear processes across the business for how payments are disbursed and the procedures for handling reimbursements.
An anti-fraud policy will typically include restricted access to financial data, expense reporting and stock/inventory in order make fraud detection — and the person(s) carrying it out — easier to identify.
4. Implement strong internal controls
It’s common for SMEs to have just one person responsible for handling 'the books' and financial reporting. This is a common formula for fraud.
When the same person oversees payments and accounting, it's easier for skimming or fake invoicing to go unnoticed – because that person knows how to make these transactions appear legitimate in your financial records.
Assigning different duties to different employees improves oversight, as well as the likelihood of 'irregularities' being caught by another set of eyes.
5. Develop an action plan
Knowing what to do when you spot fraud is super important. It clarifies a ‘chain of command’ for reporting a suspicion of fraudulent activity and it provides a strategy for minimising further losses.
If related to a cybercrime attack, an action plan should outline the steps to follow to protect other sensitive data and ensure business continuity. If you’re a director, it should also clarify who to speak to in terms of legal and professional advice.
In conclusion
With the costs of fraud skyrocketing, the ability to identify fraudulent behaviour has developed as a new workforce skill.
Establishing a culture that takes fraud prevention seriously, and then implementing a range of fraud prevention procedures and policies, can significantly minimise the chances of businesses falling victim to elaborate scams, cybercrime activity and painful financial losses.
As an SME, brokers are as vulnerable as their clients, but being forewarned and forearmed of the signs of fraud – and sharing that information with others – goes a long way in mitigating fraudulent activity. Stay alert, stay vigilant.
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