Clive Peeters Company $20 Million Employee Fraud - Case Study Example

Clive Peeters $20 Million Employee Fraud (Name) (University) Fraud Fraud is defined as all diverse methods that the human mind can come up with to take advantage of another individual by suggesting false statements or withholding the truth. It involves all manner of surprises, tricky behavior, craftiness or dissembling, and any unjust way which another individual is cheated (Black’s Law Dictionary 2014). Based on common law, the constituents of fraud are; a statement that is false and which is made with the intention of deception, the reliance of the victim on the statement and the damages that occur due to the statement. There are many classifications of fraud. There is internal fraud which is perpetrated from within the company and external fraud where the fraudsters come from outside the company. Financial fraud is the most common type of fraud with categories such as payroll fraud, double checking fraud and concealment. Types of fraud within financial and insurance organizations include false invoicing, credit card fraud which is committed by external parties and theft of cash. The categories of fraud found in corporate organizations, both non-finance and non-public sector are such as overstating or understating of assets, theft of cash and theft of inventory. Fraud within the public sector consists of deceptive tendering and misuse of non-cash assets (KPMG 2013). A KPMG study in New Zealand and Australia of bribery, fraud and corruption in 2012 showed that over the last eight years, more senior management personnel have been involved in fraudulent activities within their companies and as such the risk potential for loss and damage is very high (KPMG 2013). The survey also revealed that most fraudsters have no history of fraudulent behavior and that men are thrice more prone to engage in fraud than their counterparts; women. This retro respect paper seeks to discuss the $20 million internal fraud that occurred in Clive Peeters company between the years 2007 to 2009. Fraud in Clive Peeters The fraud in Clive Peeters Company is a clear example of the devastating effects of fraud. Before its decline in business, Clive Peeters was once an Australian electrical company that supplied electrical appliances, computers, kitchens and white goods. It had stores in Victoria, Tasmania and Queensland. The fraud was committed by Sonya Denise Causer, who was the payroll manager at that time. Sonia Causer committed the fraud by falsifying the entries in the company’s payroll accounts. The falsified entries enabled the transfer of cash from Clive Peeter’s reservoir account to her private account. The money was then used to purchase property with the worth of slightly under 20 million dollars. The nature of fraud has continuously evolved with the perpetrators being more creative. The fraud landscape has further been amplified by the use of internet for transactions where access is made easy by hackers or when an employee intentionally or unintentionally gives away information that is bound to disclose the company’s confidential information. The fraudster at Clive Peeters used her internet banking right of entry of the business to move the difference between the genuine and the reported expenses to the accounts of the bank over which she was in control. KPMG has reported that asset and revenue misappropriation is the most common of frauds and this tally with the method the previous payroll manager at Clive Peeters used to commit fraud. Factors contributing to fraud Clive Peeters Company had been going through financial upheavals and these might have provided the opportunity for fraud to occur. For the duration of the years of boom, Clive Peeters tried to develop hastily and used debts in the founding of new selling avenues. Through this a few smaller competitors were eliminated and some outwitted. For a while the company was able to service its debts since sales were good. This situation however took a downturn and the company began to fail to service its debts in adequate measure. This would have proven an opportune time for the payroll manager to defraud the company in the course of its struggle for survival in business (Smart company 2015). Deep discounting at the Clive Peeters Company was also a contributing factor to the possibility of fraud. Deep discounting primarily relies on volume. When the sales are high then the organization can reach the threshold of its profit margin. However with few customers buying the product it gets difficult for an organization to achieve its target. This in turn serves to create a leeway for possible fraud in the company. With the Australian economy heavily supporting large sized and small scale companies, Clive Peeters Company, being middle sized suffered in terms of having to ape the strategies of larger companies like Harvey Norman which only crippled the company. It was not large enough for the present competition and in the efforts to adopt similar company strategies, it ended up collapsing (Smart company 2015). The way in which the Clive Peeters Company fraud took place goes to further to show that the management was not keen on numbers. The time frame was too long not to notice any kind of fraudulent activity. This also applies to the amount that was stolen. The culture in the business must have tolerated accounting irregularities for a fraud of that magnitude to occur. The use of electronic funds transfer has created an excellent avenue for fraud due to the misunderstanding of the process and the ease of accessing client PIN numbers as the transfer process is never fully private (McNeal 2015). Management foresight in preventing fraud The management of any given company is charged with the responsibility of getting to understand full organizational operations and processes. Management also has the task of handing knowledge and the processes of knowledge in order to implement change where it is necessary to eliminate a problem. Detection of fraud may purely depend on instinct as based on the KPMG report; most fraudsters are personnel who are deemed trustworthy in the establishment. Potential signs of fraud are such as pecuniary knowledge that is not in agreement with the major indicators of performance. Other noticeable signs are lack of supporting documents for transactions which are mostly treated lightly. There are also requests from employs to access systems which are not in line with their job description which are a cause for suspicion. Excessive wealth and spending is not necessarily due to fraud but investigating into the source of the employee’s extra income may serve to confirm or alleviate suspicions. The management of Clive Peeters ought to have had the foresight to own a payroll audit trail which monitors payroll activities and points to any fraudulent activity when noticed. Security should also have been tighter around financial records and system to prevent fraud. Results of the Clive Peeters fraud Following the discovery of the fraud in Clive Peeters Company, civil action was taken against Sonya Causer and her assets were transferred to Clive Peeters. All her other investments were taken over by the victim company and sold to recover the money stolen. Due to its collapse, Clive Peeters sought new management to attempt to repair the mess but later in 2011, the Executive Chairman of Harvey Norman stated that the decision by Harvey Norman to take over Clive Peeters had been a wrong one since the company was beyond repair. Consequently, a greater number of Clive Peeters stores were converted into Harvey Norman stores with two being converted into Joyce Mayne stores. The remaining stores were then closed off and sold. The true cost of fraudulent activities cannot be fully stated due to the fraudulent activities that may have gone undetected. Following the closure of companies such as Clive Peeters, employees lose out on jobs and their image is tainted on being associated with a company that was defrauded. Legal implications of the Clive Peeters fraud Persons who commit fraud stand to be prosecuted with charges including: concealment of material facts, false claims and statements, embezzlement, mail fraud, computer fraud and financial institution fraud. Most fraudsters however are never taken to court as the managers simply choose to dismiss them or perform an internal investigation. However, for those who steal a lot of money legal action is more often than not taken. In the case of Sonya Causer, all her investments were given over to Clive Peeters, including her home which was part of the restitution. Sonya was then given a five year sentence in jail before being eligible for parole. She also avoided a ten year sentence due to her guilty plea, cooperation with the police and a previous clean record. There are numerous other fraud cases that have ended in mutual agreement and some worse off than the presented case. The fact is that fraud is present in companies and with regulators around the globe working to eliminate fraud; it comes out as vital for companies in Australia to take part in their responsibility in preventing fraud. References Garner B, A. (2014). Black's Law Dictionary (Standard Edition, 10TH Edition ) KPMG Forensic, (2013). Survey of fraud, bribery and corruption in Australia and New Zealand. KPMG LLP Thompson J (2009, August 12). Clive Peeters hit by $20 million employee fraud – how you can avoid getting stung. Retrieved from http://www.smartcompany.com.au/growth/economy/10433-20090812-clive-peeters-hit-by-20-million-employee-fraud-how-you-can-avoid-getting-stung.html McNeal (2015). What is your fraud IQ?: Journal of Accountancy Farnsworth S. (2010, August 19). Rogue accountant jailed over Clive Peeters theft. Retrieved fromhttp://www.abc.net.au/news/2010-08-19/rogue-accountant-jailed-over-clive-peeters-theft/950578 Battersby, L and McIIwraith I. (2009, December 9). How Clive Peeters lost then found its $20M. Retrieved from http://www.smh.com.au/small-business/managing/how-clive-peeters-lost-then-found-its-20m-20091207-kduh.html Winterford, B. (2010 August 20). Eight year prison sentence for Clive Peeters accountant. Retrieved from http://www.itnews.com.au/news/eight-year-prison-sentence-for-clive-peeters-accountant-229460 Shields, A. (2009, August 12). Internet banking fraud- Clive Peeters case. Retrieved from http://www.dolmanbateman.com.au/604/internet-banking-fraud-clive-peters-case/ Read More