Fraud
Fraud is closer than most organisations think
Employee Fraud in Australia: What Councils and SMEs Must Do to Protect Themselves in 2026
Fraud Is Closer Than Most Organisations Think
When business owners consider fraud, they often envision cybercriminals, organised crime groups, or advanced hackers operating from abroad.
The reality is often much nearer to home.
Many of the most substantial fraud losses experienced by Australian organisations involve trusted employees, managers, contractors, or suppliers. Individuals responsible often have allowed access to financial systems, procurement processes, and confidential information.
For councils and small to medium-sized enterprises (SMEs), employee fraud continues to represent one of the most significant governance and financial risks in 2026.
The impact extends significantly beyond financial loss. Fraud can severely compromise public trust, harm an organisation’s reputation, erode workplace culture, and subject leaders to increased scrutiny about their oversight responsibilities.
What Is Fraud?
Fraud occurs when an individual intentionally uses deception to secure a benefit or inflict a loss.
The benefit may encompass monetary compensation, property, contracts, services, employment opportunities, or other forms of advantage.
Fraud may occur through:
- False invoices.
- Procurement process manipulation.
- Payroll fraud.
- Expense claim fraud.
- Theft of funds.
- Misuse of company credit cards.
- False timesheets.
- Wage theft.
- Cyber-enabled financial fraud.
The Association of Certified Fraud Examiners consistently estimates that organisations incur losses of about five % of their annual revenue because of fraud. For many SMEs, that level of loss can be financially devastating.
What Motivates Employees to Commit Fraud?
One of the most widely recognised explanations continues to be the Fraud Triangle.
The model shows that fraud arises when three elements converge:
Pressure
Employees may encounter financial difficulties, gambling challenges, addiction concerns, familial pressures, or substantial personal indebtedness.
Amid ongoing cost-of-living pressures across Australia, financial stress is contributing to an increased risk of fraud.
Opportunity
Opportunity often entails the highest level of risk.
Employees engage in fraudulent activities when they perceive vulnerabilities in internal controls and believe such actions will go undetected.
Inadequate procurement controls, insufficient segregation of duties, excessive reliance on trust, and limited oversight often create conditions conducive to fraud.
Rationalisation
Offenders often justify their conduct.
Typical rationalisations include:
- “I deserve it.”
- “I’m only borrowing the money.”
- “The organisation owes me.”
- “Nobody will notice.”
Many fraudsters initially engage with relatively small amounts before progressively escalating their activities.
The Fraud Triangle has evolved into the Fraud Diamond, with a fourth element representing the offender’s capability to manipulate the system and commit fraud.
Recent Australian Examples
Recent cases illustrate how trusted employees can be responsible for substantial losses.
In 2026, a former finance executive pleaded guilty to gaining nearly $500,000 from his employer through over 100 unauthorized financial transactions. The offence took place during his tenure in a trusted senior finance position. (Herald Sun)
In a separate matter, a Cronulla RSL employee has been charged in connection with allegations of fraudulent transactions exceeding $367,000. The club then reported potential losses totalling about $1.46 million over a two-year period. The purported misconduct was identified internally before being referred to law enforcement. (News.com.au)
Both matters highlight a consistent theme: fraud often arises when trusted employees have access to systems and funds with limited oversight.
Warning Signs Organisations Should Never Ignore
Fraud investigations often uncover indicators that were present well before the fraud was identified.
Typical indicators include:
- Employees declining to take leave.
- Hesitancy to delegate responsibilities.
- Excessive oversight of financial processes.
- Records are missing.
- Unusual supplier relationships.
- Sudden unexplained wealth.
- Consistent circumvention of established approval procedures.
- Bullying behaviour that inhibits critical examination.
- Notable shifts in purchasing patterns.
Trust is important.
Trust without verification introduces risk.
Emerging Fraud Risks in 2026
Fraud has undergone significant evolution.
Organisations are increasingly facing:
- Business email compromise fraud schemes.
- Fake supplier invoices.
- Payroll diversion fraud schemes.
- Collusion in procurement.
- Electronic record manipulation.
- Fraudulent vendor arrangements.
- Cyber-enabled theft.
As of 1 January 2025, the intentional underpayment of employees has been classified as a criminal offence under Commonwealth law. Organisations must now address wage theft within their fraud and compliance frameworks. (Fair Work Ombudsman)
How Councils and SMEs Can Prevent Fraud
Effective fraud prevention requires a systematic and structured approach.
Strengthen Governance
Leaders must actively oversee procurement processes, financial controls, and delegated authority arrangements.
Segregate Duties
No individual employee should have sole responsibility for managing an entire financial process from start to finish.
Conduct Regular Audits
Routine and surprise audits often detect issues before losses intensify.
Manage Conflicts of Interest
Undisclosed conflicts continue to represent one of the most common sources of procurement fraud and misconduct.
Train Employees
Fraud awareness training enables staff to recognise potential risks and understand their reporting responsibilities.
Support Whistleblowers
A significant number of fraud cases are identified through employee tip-offs rather than audits.
Employees should be assured that they can report concerns without fear of retaliation.
Final Thoughts
Organisations most at risk are often those that assume fraud could never affect them.
Regrettably, many fraud investigations begin with precisely that assumption.
For councils and SMEs, fraud prevention extends beyond merely fulfilling compliance requirements. It is a fundamental governance responsibility.
Strong controls, careful oversight, ethical leadership, and a culture that promotes transparent reporting continue to represent the most effective defences against employee fraud.
Fraud cases seldom raise whether warning signs were present.
The key question is whether any action was taken upon their initial appearance.
Fraud and Financial Mismanagement in Local Government and SMEs
Fraud and Financial Mismanagement: A Serious Risk for Local Government and SMEs
Fraud and financial mismanagement affect not just large corporations. Local governments and small to medium-sized enterprises (SMEs) often confront heightened risks because they typically have fewer controls, limited staff, and greater levels of employee trust.
Unfortunately, this combination creates fertile ground for fraud, corruption, and financial mismanagement that often remain hidden for long periods.
This article explores the critical risk of fraud, how it unfolds, and the strategies Local Government and SMEs can use to combat it.
Why Fraud and Financial Mismanagement Are Serious Risks
Fraud often hides in plain sight, far from obvious or conspicuous. It often begins modestly and thrives. A single incident of a minor false invoice or misuse of a company credit card can quickly escalate into ongoing theft, procurement fraud, or manipulation of financial records.
In local government, fraud involving public funds triggers financial losses, damages reputations, and sparks political fallout. A fraud incident within a council can quickly grab front-page headlines, triggering investigations, audits, and intense public scrutiny.
For SMEs, fraud can strike with devastating impact. Many small businesses run on razor-thin profit margins, where a single act of fraud can trigger severe financial distress or even bankruptcy.
So fraud prevention and financial controls must take centre stage, not be relegated to afterthoughts.
Common Types of Fraud in Local Government and SMEs
Fraud and financial mismanagement typically reveal themselves through recognisable patterns. The most common types include:
Procurement Fraud
This stands as one of the most critical fraud risks facing local government. It features:
- Fake invoices
- Collusion with suppliers
- Conflicts of interest
- Overcharging for goods or services
- Paying for work not completed
Procurement fraud thrives on the large sums of money involved and the inherent trust placed in the procurement process.
Payroll Fraud
Payroll fraud includes:
- Ghost employees
- False overtime claims
- Unauthorised pay increases
- Timesheet manipulation
Payroll fraud can persist undetected for years when payroll reports are not thoroughly reviewed.
Expense Claim Fraud
This occurs when employees claim:
- Personal expenses as business expenses
- Fake receipts
- Inflated travel claims
- Unauthorised use of company credit cards
Though individual claims may be small, over time they can drain organisations of thousands of dollars.
Theft of Cash or Assets
This includes:
- Stealing cash
- Taking equipment or materials
- Misuse of fuel cards
- Using council or company equipment for private work
Financial Mismanagement
Financial mismanagement may not always be fraudulent, yet it can inflict just as much damage. It features:
- Poor record keeping
- Unauthorised spending
- Budget blowouts
- Failure to reconcile accounts
- Lack of financial oversight
- Not following procurement policies
Financial mismanagement often opens the door to fraud.
Why Fraud Occurs (The Fraud Triangle)
Fraud experts often invoke the Fraud Triangle to reveal why people commit fraud. It centres around three key factors:
- Pressure—Financial problems, gambling, debt, lifestyle pressures
- Opportunity—Weak internal controls, poor supervision, lack of audits
- Rationalisation—The person convinces themselves the fraud is justified (“I’m underpaid,” “I’ll pay it back,” “No one will notice”)
By reducing opportunities, an organisation significantly slashes the risk of fraud.
Warning Signs of Fraud and Financial Mismanagement
Warning signs constantly reveal when something is wrong. Watch out for these common red flags:
- An employee who never takes leave
- One person controlling a process from start to finish
- Missing receipts or invoices
- Suppliers who refuse to provide documentation
- Regular budget overruns
- Complaints about unfair procurement processes
- Poor record keeping
- Delays in financial reporting
- Staff living beyond their means
- Resistance to audits or oversight
Though not definitive proof of fraud, these indicators raise enough concern to demand a thorough review.
How Local Government and SMEs Can Prevent Fraud
Fortunately, straightforward controls can stop most fraud in its tracks.
Segregation of Duties
No single person should control a process from start to finish. For instance:
- One person raises a purchase order
- Another person approves it
- Another person processes the invoice
- Another person approves payment
Clear Policies and Procedures
Organisations must set clear, decisive policies on:
- Procurement
- Conflict of interest
- Expenses
- Use of credit cards
- Delegations and approvals
- Financial management
Policies must not only exist—they must be actively used and enforced.
Regular Audits
Regular internal and external audits serve as a powerful weapon against fraud. People are much less likely to commit fraud when they know they are being watched.
Fraud and Corruption Control Plan
Local governments and organisations must have a Fraud and Corruption Control Plan that identifies risks and outlines how to manage them.
Encourage Reporting
Many fraud cases became known only because someone reported them. There should be:
- Confidential reporting systems
- Whistleblower policies
- A culture where people feel safe reporting concerns
Management Oversight
Managers must regularly carry out regular reviews:
- Financial reports
- Supplier lists
- Overtime reports
- Credit card statements
- Procurement reports
Fraud prevention is a shared responsibility in management, not merely an accounting task.
The Real Cost of Fraud
The cost of fraud extends well beyond the money stolen. The actual cost breaks down into:
- Investigation costs
- Audit costs
- Legal costs
- Loss of reputation
- Loss of public trust
- Staff morale damage
- Management time
- Possible disciplinary action or termination
- Media spotlight—especially shining on Local Government
Often, reputational damage cuts deeper than financial loss.
Final Thoughts
Fraud and financial mismanagement pose serious threats to local governments and SMEs, which rely heavily on trust, grapple with limited resources, and often lack strong internal controls.
Yet, most fraud is preventable.
When organisations zero in on:
- Strong internal controls
- Clear policies
- Management oversight
- Regular audits
- Fraud awareness
- Encouraging reporting
They can significantly slash their risk of fraud.
Fraud prevention is not just about catching wrongdoers—it is about creating systems that actively stop fraud before it starts.
Contact [email protected] if you need help in this area.