MAA250

Topic 9

Professional
Commitment and Fraud

Deakin University CRICOS Provider Code: 00113B

 LEARNING OUTCOMES

• Understand the expectations and responsibilities of

professional commitment from financial professionals.
• Understand the relevant codes and sections of FASEA
and APES110 in relation to professional commitment
and fraud.
• Resolve ethical dilemmas in relation to fraud and
threats to professional commitment.

2
Deakin University CRICOS Provider Code: 00113B
PROFESSIONAL COMMITMENT

• Professional commitment is imperative to ensure employees

are committed to their responsibilities and principal.
• Lack of commitment may lead to systematic fraud.
• Standards that deal with professional commitment are:
o Standard 10: Knowledge and skills
o Standard 11: Cooperation with ASIC and monitoring
bodies
o Standard 12: Uphold and promote the ethical standards
of the profession

3
Deakin University CRICOS Provider Code: 00113B
FA S E A C O D E

Standard 10: Knowledge and skills

“You must develop, maintain and apply a high level of relevant

knowledge and skills.”

• relates to the FASEA value of ‘competence’.

• Advisers deemed not to be “competent’ if they have not
developed and maintained a high level of knowledge and skills
that matches the demands of the role and the trust reposed in
them by their client.
• Continuing Professional Development (CPD) requirements
support this standard
4
Deakin University CRICOS Provider Code: 00113B
 Practice Case

5
Deakin University CRICOS Provider Code: 00113B
 Discussion Points
Given the client is anxious, did the financial
adviser provide the best long term advice
by suggesting the switch?

To what extent is it appropriate for a

financial adviser to take risks that the client
has to bear?
Is the financial adviser reasonably informed
in this situation?
6
Deakin University CRICOS Provider Code: 00113B
FA S E A C O D E

Standard 11: Cooperation with ASIC and monitoring bodies

“You must cooperate with ASIC and monitoring bodies in any

investigation of a breach or potential breach of this Code.”

• Advisers have the duty to cooperate with any investigation of a

breach or potential breach of this Code by a monitoring body
or ASIC.
• Standard 8 of good record-keeping requirement would assist
in this process.

7
Deakin University CRICOS Provider Code: 00113B
 Practice Case

8
Deakin University CRICOS Provider Code: 00113B
 Discussion Points
Imagine yourself in this situation as part of
a routine investigation, would you be
feeling anxious and defensive?

Would you have concerns about privacy

and/or confidentiality in this situation?
If the adviser has done nothing wrong, then
do they have rights in this situation?
9
Deakin University CRICOS Provider Code: 00113B
FA S E A C O D E

Standard 12: Uphold and promote the ethical standards of the

profession

“Individually and in cooperation with peers, you must uphold

and promote the ethical Standards of the profession, and hold
each other accountable for the protection of the public
interest.”

• maintains ethical standards through a process of inter-

personal accountability- ‘police their own peers’.

10
Deakin University CRICOS Provider Code: 00113B
 Practice Case

11
Deakin University CRICOS Provider Code: 00113B
 Discussion Points
What ethical perspective did Darius take
when making his decision?

Darius is caught between the client and his

employer, whose interest matters more in
this situation?
Has Darius put his firm and his own
employment at risk in order to help the
client?
12
Deakin University CRICOS Provider Code: 00113B
FA S E A C O D E

• To maintain reputation of the sector, necessary to keep each

other accountable to the standards that bind professionals to
each other.
• professional associations too play a role- advocating,
educating and supporting best practices among members to
uphold public interest.

13
Deakin University CRICOS Provider Code: 00113B
APES 110

APES 110 Part 2 Section 260, 270

• provide guidance regarding professional commitment as it
relates to compliance, similar to Standards 10-12 of FASEA, but
with a focus on the accounting profession.
• It outlines the key responsibilities of a professional with
regards to maintaining and upholding the ethical standards of
the profession at all times.
• Outlines key areas and actions required of the professional in
situations where fraud has been identified as a possibility or as
an occurrence.

14
Deakin University CRICOS Provider Code: 00113B
APES 110

APES 110 Part 3 Section 320, 360

• provide guidance regarding professional commitment similar
to Standards 10-12 of FASEA, but with a focus on the
accounting profession.
• It outlines the key steps to navigate issues that could impede
on establishing appropriate arrangement with clients (client
acceptance, engagement acceptance, changes in a
professional appointment)
• To minimize the interference of professional commitment or
create the possibilities for fraudulent behaviour
• It also provides core values to guide the pursuance of
15
appropriate arrangement with clients
Deakin University CRICOS Provider Code: 00113B
 FRAUD – AN OVERVIEW

• What is fraud?

“… is a theft committed in the course of employment involving

the use of deception to obtain a financial advantage …”

• In layman’s terms:

‘… fraud is corporate theft … ‘

16
Deakin University CRICOS Provider Code: 00113B
 FRAUD OR ERROR

Errors
• are caused unintentionally, perhaps arising out of
carelessness, oversight, or misinterpretation of facts.

Fraud
• any intentional act committed to secure an unfair or
unlawful gain.

17
Deakin University CRICOS Provider Code: 00113B
 FRAUD OFFENCES

• Fraud offences in Victoria are covered by the Crimes Act

1958

• Also exist under various Commonwealth legislation,

including:

o Corporations Act- relates to corporate governance

o Trade Practices Act- relates to the conduct of business
affairs.

18
Deakin University CRICOS Provider Code: 00113B
 FRAUD OFFENCES

Section 72 of the Crimes Act

Basic definition of theft
• A person steals if he dishonestly appropriates property belonging to
another with the intention of permanently depriving the other of it.

To establish the offence of theft the following elements must be

proven:
• Person X acted dishonestly
• Person X appropriated property;
• The property belonged to another;
• Person X intended to permanently deprive the owner of the
property

19
Deakin University CRICOS Provider Code: 00113B
 O C C U PAT I O N A L F R A U D

Occupational fraud
• Defined as the use of one’s occupation for personal
enrichment, through the deliberate misuse or
misapplication, of the employing organization’s resources or
assets (ACFE,2020).
• Also known as internal fraud as usually committed by those
within the organization- employee, manager, officer or
owner.
• generally falls within the ambit of white-collar crime, which
is broadly defined as crime committed within the course of
one’s white-collar employment

20
Deakin University CRICOS Provider Code: 00113B
 O C C U PAT I O N A L F R A U D

What is ‘white collar crime’?

“…is financially motivated nonviolent crime

committed for illegal monetary gain”

• often speculated as ‘victimless’ (which is not true)

• White collar crime may also be referred to as
corporate crime, as opposed to conventional crime
which often has a weapon, victims, and
fingerprints, etc.

21
Deakin University CRICOS Provider Code: 00113B
 TYPES OF
O C C U PAT I O N A L F R A U D

According to Association of Certified Fraud Examiners

(ACFE)
• Asset misappropriation
• Financial statement fraud
• Corruption

https://www.acfe.com/fraud-tree.aspx
22
 TYPES OF
O C C U PAT I O N A L F R A U D

23
 O C C U PAT I O N A L F R A U D

Asset misappropriation
• employee steals or misuses the organization’s resources
• Known as Embezzlement -theft or misappropriation of
funds placed in one's trust or belonging to one's employer.
• e.g. theft of company cash, false billing schemes or
inflated expense reports
• KPMG survey of fraud in 2012 found 75% of major frauds
were committed by insiders.
• ACFE (2016) reported that this fraud represents the
majority of the fraud- 83.5% of fraud cases with median loss
of $125,000

24
Deakin University CRICOS Provider Code: 00113B
 O C C U PAT I O N A L F R A U D

Financial statement fraud

• Committed by management to deceive investors and other
financial statement users
• Schemes, in which an employee intentionally causes a
misstatement or omission of material information in the
organization’s financial reports
• e.g. recording fictitious revenues, understating reported
expenses or artificially inflating reported assets

25
Deakin University CRICOS Provider Code: 00113B
 O C C U PAT I O N A L F R A U D

Financial statement fraud

Money
Truth
Power
Fairness
Prestige have always put pressure
on Humility
Pride
Position Honesty

• A conflict arises when management propose an accounting

policy that may adversely affect the faithful representation
of the company’s financial performance or position
26
Deakin University CRICOS Provider Code: 00113B
 O C C U PAT I O N A L F R A U D

Financial statement fraud

• Accountants in business (i.e. employee accountants) cannot
maintain independence due to the contractual nature of
their relationship with their employer
• Can be under the influence of:
o Pressure to collude
 professionalism (professional ethics) vs. subservience
to employer
o Group-think and dominant personalities
 individuals yield to dominant view of group

27
Deakin University CRICOS Provider Code: 00113B
 O C C U PAT I O N A L F R A U D

Financial statement fraud

• However, this does not absolve accountants from their
professional duty to report accurately and fairly.
• Salaried, employed or internal professionals retain their
primary duty to act in the public interest (publicly
accountable), as well as professional duty to act with
integrity and objectivity

28
Deakin University CRICOS Provider Code: 00113B
 O C C U PAT I O N A L F R A U D

Corruption
• an employee misuses his/her influence in a business
transaction, in a way that violates his/her duty to the
employer, in order to gain a direct or indirect benefit (ACFE,
2020)
• e.g. schemes involving bribery, conflicts of interest, insider
trading, anti-competitive practice, etc.
• Representing second most fraud cases with 35.4% of all
cases with median loss of $200,000 (ACFE, 2016)

Transparency International - Corruption Perceptions Index (CPI) 2019: LINK

29
Deakin University CRICOS Provider Code: 00113B
 O C C U PAT I O N A L F R A U D

Corruption
• The distinction between a gift and a bribe is not always
obvious
• In some cultures
o there is a longstanding tradition of gift giving to
cultivate long term relationship;
o in other cultures, such gifts are viewed as bribes
• Almost a third of Australian organisations have operations in
markets with high levels of bribery and corruption (PwC)

30
Deakin University CRICOS Provider Code: 00113B
 O C C U PAT I O N A L F R A U D

Corruption
• using one’s influence to obtain a benefit, usually by way of
bribes
Bribery
• offering, giving, receiving or soliciting for anything of value
to influence the behaviour of an employee or official
Facilitation payments
• nominal value payments made to speed up a result that
would have happened anyway

31
Deakin University CRICOS Provider Code: 00113B
 O C C U PAT I O N A L F R A U D

A GIFT.
BRIBERY OR A REASONABLE GESTURE OF THANKS?
• Professional should avoid accepting any gifts that would
undermine and influence the decision making- See Topic 8 -
Should not accept when:
o the value of the ‘gift’ is excessive or of significance
o it is a ‘conditional’ offering
o the recipient feels ‘indebted’ to the party imparting the
gift, monies or offerings
o This could come in the form of financial incentives,
overseas airfares, overseas holidays, tickets to major
events etc.

32
Deakin University CRICOS Provider Code: 00113B
 WHO COMMITS FRAUD?

Anyone can commit fraud, including professionals

• once they lose their integrity, that is, become
dishonest.
• Impossible to predict or identify who is likely to
become
o dishonest
o which of your employees has a gambling problem
o is currently facing a financial crises
o is currently battling a drug addiction
o which of your suppliers is providing “incentives” to
key employees
33
Deakin University CRICOS Provider Code: 00113B
 WHY IS FRAUD COMMITTED?

• Understanding motivation can provide clues about

prospective avenues of enquiry which can be
investigated for documentary evidence:
o A gambling addict can have betting accounts with
the Casino or a Betting account to sustain gambling
addiction
o Maintaining a high lifestyle, can have a high limit
credit card and paid of by fees derived directly or
indirectly from the fraud.

34
Deakin University CRICOS Provider Code: 00113B
 WHY IS FRAUD COMMITTED?

Fraud Triangle
• Elements:
• Pressure (motivation to commit fraud)
• Opportunity (indicator of poor control systems)
o 74% of organisations in the PwC 2014 crime survey
indicated fraud was due to opportunity
• Rationalization (justification/reasoning behaviour and
eases misgivings)

Video

35
Deakin University CRICOS Provider Code: 00113B
WHY IS FRAUD COMMITTED?

36
Deakin University CRICOS Provider Code: 00113B
WHY IS FRAUD COMMITTED?

37
Deakin University CRICOS Provider Code: 00113B
WHY IS FRAUD COMMITTED?

38
Deakin University CRICOS Provider Code: 00113B
 O T H E R F R A U D C O N S I D E R AT I O N S

KPMG identify an additional three factors:

• Leadership
• Role of significant others (family, friends)
• Organisational culture

39
Deakin University CRICOS Provider Code: 00113B
WHY IS FRAUD COMMITTED?

• In examining the elements of fraud and motives

surrounding the fraud, it's important to consider how the
professional ought to behave:

o What are your ethical obligations to others,

particularly to your clients?
o How do you determine what the best interests of the
client are?
o How do you come to know your clients' individual
circumstances?

40
Deakin University CRICOS Provider Code: 00113B
 COVID-19:
KPMG FRAUD SURVEY

• KPMG conducted a survey on how COVID-19 affects

fraud and corruption in corporate Australia.
• Factors encouraging fraud and corruption practices
during COVID-19:
o distracted business
o rationalised processes and controls
o cut back on internal audits
o remote working conditions
o increased financial pressures

LINK
41
Deakin University CRICOS Provider Code: 00113B
 COVID-19:
KPMG FRAUD SURVEY

• 83% of senior executives believe their organization

was vulnerable to fraud.
• 7% of executives said they had already seen
fraudulent or corrupt behaviour attribute to COVID-19
era working condition.
• 67% of respondents believe employees are the biggest
threat to the organizations

42
Deakin University CRICOS Provider Code: 00113B
 PWC GLOBAL ECONOMIC CRIME
SURVEY 2020

• Pricewaterhouse Coopers (PWC) provides an

alternative perspective concerned with ‘economic
crime’- broader concept than ‘fraud’.
• Top 4 types of economic crimes reported are:
1. Customer Fraud
2. Cybercrime
3. Asset Misappropriation
4. Bribery and Corruption

LINK
43
Deakin University CRICOS Provider Code: 00113B
 PWC GLOBAL ECONOMIC CRIME
SURVEY 2020

• During times of economic stress the components of the

fraud triangle are intensified
o Rationalisation
o Incentive; and
o Opportunity

• Primary perpetrators are now external fraudsters (39%)

but internal fraudsters remain high (37%).

44
Deakin University CRICOS Provider Code: 00113B
 ONE POSSIBLE RESOLUTION TO
FRAUD: WHISTLEBLOWING

Whistleblowing
“… the activity of disclosing information externally that is
normally regarded as confidential within the firm, but the
disclosure of which is deemed to be in the public’s best
interest…”

Internal whistle-blowing- occurs when the employee discloses

violations within the organisation, rather than outside the
organisation

45
Deakin University CRICOS Provider Code: 00113B
 WHISTLEBLOWING

Whistleblowing
• occurs when one or more employees disclose, without
authorisation, information about an unethical or illegal act
by the employing organisation to a party external to the
employing organisation that owns the information
• Two important conditions for whistle-blowing - information
is:
 disclosed without permission
 released to an external party

46
Deakin University CRICOS Provider Code: 00113B
 WHISTLEBLOWING

The moral dilemma of whistleblowing

• Does the employee’s duty to the employer outweigh one’s

obligation to society?

• Is whistleblowing an act of disloyalty to the company; or an

obligation to society?

• It could be argued that loyalty to the employer should not

be absolute. Loyalty is only a virtue when the object of that
loyalty is good.

47
Deakin University CRICOS Provider Code: 00113B
 WHISTLEBLOWING

The duty of confidentiality

• Follow company policy

 internal protocols/procedures
 whistle-blowers should exhaust all internal channels of
dissent before taking their information outside the
organisation
• Consider obtaining legal advice before whistleblowing

48
Deakin University CRICOS Provider Code: 00113B
 WHISTLEBLOWING

The duty of confidentiality

• Whistle-blowing highlights the inherent conflict in

professional responsibilities, to
 protect the public interest; or
 maintain confidentiality
(as required by APES 110 Code of Ethics for Professional
Accountants and FASEA Code).

49
Deakin University CRICOS Provider Code: 00113B
 CASE STUDY
HUMAN RESOURCE

Imagine you are the in the Human Resources department of a company and
the CEO has asked develop an ethics program and policy for the firm. The
CEO has asked for eight potentially desirable outcomes of effective ethics
programs:

• Discovery of unethical/illegal behavior and reduction of meltdowns.

• Awareness of ethical and legal issues.
• A resource for guidance and advice.
• Accurate reports of wrongdoing.
• Greater customer loyalty.
• Incorporation of values in decision processes.
• Greater employee commitment and loyalty to the organization.
• Satisfaction of external and internal stakeholder needs.

50

Deakin University CRICOS Provider Code: 00113B

 DISCUSSION POINTS

• List the issues you think should be addressed in a code of ethics. Other than a
code of ethics, what other elements would you include in an ethics program?

• How would you measure success along the way? How will you measure
whether your ethics program is “working” before you reach any end
objective? 

• Whom will you define as your primary stakeholders? 

• How will you answer the CEO’s questions about her own role in promoting
ethics?

51

Deakin University CRICOS Provider Code: 00113B