Fraud is one of the fastest growing crimes in Australia and costs the economy in excess of one billion dollars every year.
In Western Australia in 2010 and 2011, two cases involved the sale of properties without the knowledge and consent of the legal and beneficial property owners. The agent thought he was dealing with the owners. Instead, he was dealing with three imposters on the other side of the world.
These cases led to a call to action by regulatory authorities and attracted the attention of the Financial Action Task Force, which stated that Australia needed to enhance its detection of fraud by increasing compliance levels.
The Task Force also delivered warnings and additional communications to real estate agents about exercising caution and being vigilant when managing transactions that would be considered reportable to AUSTRAC due to their intersect with provisions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. NSW Fair Trading subsequently developed the Real Estate Fraud Prevention Guidelines providing basic tips to identify fraud and assistance in detecting fraudsters in instances of identity theft.
It’s now been almost a decade since these cases occurred, but the fraud risks being faced by the real estate industry are still significant with some of the more common types of fraud (such as trust account fraud, mandate fraud or falsified financial statements and documents) leaving even the most compliant real estate agencies potentially exposed.
Typically, smaller businesses like real estate agencies (with less than 250 employees) have fewer resources and less time to allocate to reviewing policies and procedures – but this is precisely why they may find themselves vulnerable to fraudsters. Unchecked policies or procedures within an agency’s fraud control framework could be outdated or irrelevant. Further, if there’s a lack of awareness regarding the purpose of these policies and procedures, there’s a high risk of non-compliance, and prevention and detection strategies may be rendered ineffective.
Investing in insurance to protect your agency from the significant losses that may flow from a fraud incident is sensible. Equally, it’s sensible to invest in fraud risk management in order to highlight better prevention strategies and enhance an agency’s capability to detect instances of fraud more quickly.
Hindsight is a wonderful thing, as the cases above clearly illustrate. Had more effective authentication measures been adopted, then frauds of such magnitude may not have occurred.
It’s important to focus on introducing, reviewing and strengthening controls that deter fraudsters and mitigate the financial or operational impact of any fraud perpetrated. Prevention measures may include revised authentication measures on all documents, proper restrictions on financial transactions and implementing co-signatories on trust account transactions.
In the fight against fraud, ask:
- How often are you reviewing approval processes and taking steps curbing the ‘usualness’ factor?
- How often are you changing the details of suppliers, sellers and other clients without verifying their details?
- How often are you reviewing your employment on-boarding processes?
Asking these questions and working to address any gaps revealed will help to prevent fraud.
To effectively mitigate the financial and operational impact of a fraud, strong fraud detection must be a top priority.
Instances of suspected fraud need to be identified and escalated via established, well-known and widely understood reporting mechanisms. These mechanisms will only operate effectively if there is no complacency (such as the failure to monitor compliance).
Here are three ways an agency can improve its efforts in fighting fraud:
- Establish a framework and secure leadership
Set the scene by clearly communicating, through policies and procedures, the agency’s expectations of those working within or affiliated with the business. Agencies are likely to have established ethical and behavioural policies in place and these can be leveraged via a fraud control framework. To implement and maximise the best outcomes from the fraud control framework, messages must come from the top. Whether it be the CEO, leadership team or a nominated executive, they must champion and promote the values and ethics of the agency. Without this support, there will be uncertainty when applying the framework and a likely lack of confidence in it.
- Conduct regular and targeted risk assessments
Many agencies may lack time and resourcing to adequately review preventative or detection controls effectively. A formal program focusing on the agency’s high risk areas – such as finance, asset management, procurement, human resources or sales – can aid in the discovery of new opportunities to fight fraud and mitigate significant loss.
- Raise awareness and educate employees about risks and emerging threats
The best prevention and detection strategies are those that are known, effectively evaluated and understood. Perhaps the most under-utilised support resource in the application of a fraud control framework is an agency’s employees (including those responsible for the completion of fraud risk assessments and those working on the frontline. Familiarising those responsible for assessments with the process, the need for continuous monitoring and the use of reporting mechanisms will enhance an agency’s capability to prevent and detect fraud.
By SUZANNE HOPKINS, a Senior Consultant in the Forensic Accounting and Claims Services Team at Marsh Advantage.
Marsh Forensic Accounting and Claims Services can help your agency to implement a fraud control framework that is proportionate to your risk profile. To find out more, contact Suzanne Hopkins on (03) 8664 9316 or firstname.lastname@example.org
This article first appeared in the Sep/Oct REINSW Journal.
The information contained in this article, which is current as at the date of publication, provides only a general overview of subjects covered. It is not intended to be taken as legal advice or advice regarding any individual situation and should not be relied upon as such.