Week 10 - Fraud & Prevention

Fraud is at present one of the most commonly perpetrated, but thoroughly undetected and unreported crimes in Australian business. A recent study by KPMG found that fraud losses over a two year period, in Australia, totalled up about $373million. This shows how widespread and damaging fraud is to Australian businesses, from large companies to small mum and dad retail businesses.

Fraud is broadly defined, but can be considered to be any intentional deception that is characterised by a false representation of a material point, which is then believed and acted upon by the victim, to their detriment.

A speaker at a business advisory conference recently outlined a set of the usual characteristics of a company that may lead to fraud. Some of these included low morale, high turnover of staff, management attitude, lowly skilled & trained staff (IT in particular), analytical anomalies, salary structures tied to profits and no education on how to report fraud. He emphasised the point that awareness and education is the key to defeating fraud.

If we analysed the above characteristics in regards to the fraud triangle, we would get the following diagram:

 

As you can see, while it is a bit light in the pressure section, the speaker has common characteristics leading to fraud. I would probably also include employee unwillingness to take holidays as an opportunity, and low employee satisfaction as a rationalisation, as common characteristics.

In regards to the point of awareness and education being key to defeating fraud, I would say in a broad sense, this is correct. Employees and employers both need to be aware of the prevalence of fraud, how fraud is commonly perpetrated, and how to combat fraud. The systems of stopping fraud, how to recognise fraud and the attitudes to convey for fraud are imperative for employers to learn and implement.

So, again, of course education and awareness is key to defeating fraud, or at least minimising it greatly, but there is a lot more to it than simple education.

 

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http://www.youtube.com/watch?v=Zdf_KrGQ6mQ – Great video directed to businesses to counter some common fraud incidences.

http://www.kpmg.com/AU/en/IssuesAndInsights/ArticlesPublications/Fraud-Survey/Pages/fraud-bribery-corruption-survey-2012.aspx -In depth KPMG survey into fraud

Week 9 -Internet Censorhsip & Filtering

Hearing about how easy it is for potential criminals or terrorists to find out online how to make explosive devices, seeing posts made on a public social media site by a friend (aged 14) showing gruesome images, and knowing how easy it is for young people to access, and potentially even post, pornographic images over the internet. These things worry me about the online community nowadays, as it does many people. This raises the view, amongst many, of filtering of internet content, and who should be responsible.

 

Currently, the Australian Communications and Media Authority (ACMA) oversee the filtering of online content. They are tasked with blocking any content that is Refused Classification, such as child sex abuse content, bestiality, sexual violence including rape and the detailed instruction of crime or drug use, and anything rated X. They must also police R18+ rated content that is without a restricted access system (measures to restrict access to those ‘authorized’, above 18years of age). For any such content hosted on an Australian server they can issue a final take down notice. If it is overseas, their power is limited to adding this content to a list that is provided to ISP’s, who then have to offer filtering software to their clients.

 

In December 2009, Stephen Conroy, Minister for Broadband, Communications and the Digital Economy, issued a press release stating a proposal for Internet Service Provider’s (ISP’s) to filter any content deemed unsuitable. In response to this, many organisations, especially the Electronic Frontiers Australia (EFA) criticized the government’s proposal, calling it, and filtering in general, ineffective and obstructive. They have stated ’Top-down, one-size-fits-all approaches to dealing with these challenges, such as the government's now-abandoned mandatory internet filter, are not appropriate, nor likely to be effective in terms of outcomes or value for money.’

 

In my opinion, internet content should be filtered to a point, and ISP’s should be the ones to filter this content. Essentially, they are offering a service for money. This service then allows people to access unsuitable content, which should be stopped by those offering the service, no matter the cost.

 

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http://www.acma.gov.au/WEB/STANDARD.PC/pc=PC_90169#os – ACMA fact sheet on filtering

 

http://www.austlii.edu.au/au/legis/cth/consol_act/bsa1992214/ - Broadcasting Services Act 1992

 

https://www.efa.org.au/Issues/Censor/cens1.html - EFA fact sheet on censorship

 

http://www.minister.dbcde.gov.au/media/media_releases/2009/115 - Stephen Conroy’s press release for ISP filtering

Week 8 - Disclaimers in Advertising

Disclaimers are a commonly used method business’ can use for advertising to catch the viewers’ interest. Generally, they employ an image or text with a clear, attention grabbing statement. They then go on to clarify or explain the statement in detail in a separate, less highlighted or emphasized way, this being the disclaimer.

 

The Australian Competition and Consumer Commission (ACCC) has identified this area as one businesses need to pay special attention to, in order to not mislead the viewer. While there is often a very thin line in advertising, it is against the law to engage in conduct that may be misleading or deceptive to the consumer.  And to do so, they have outlined a set of guidelines businesses should follow with disclaimers in advertising. They must:

·         be bold, precise and compelling;

·         be accurate, clear and in precise terms;

·         not contradict the main message of the ad; and

·         be introduced at the same time as the representations they qualify.

 

Care must also be taken with audio-visual forms of advertisements, such as verbal disclaimers, written disclaimers in video ads or voiceovers.

 

Below are examples of disclaimers in online advertisements:

 

 

 

The Medibank advertisement for travel insurance is probably the best of the lot for consumers. The asterisks  is nice and clear, and the disclaimer (the terms and conditions) were listed close to the ad, with lots of details. The other two are less effective uses of disclaimers. The main complaint with the Freedom Furniture ad is that the disclaimer merely says ‘Conditions Apply’, with no real explanation or access to these conditions. The Groupon ad is not overly great for consumers, but is probably fine with the ACCC guidelines. There is little information in the ad for consumers in terms of these actual deals, but as long as these deals will be real in the future, Groupon hasn’t been misleading.  

 

Generally, disclaimers are an effective means of advertising. However, while none of the examples given would breach the guidelines issued by the ACCC, there is, as stated, a very thin line, and care must be taken.

 

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http://transition.accc.gov.au/content/item.phtml?itemId=303213&nodeId=036ca4235ebf82478fa3d969c13d94dd&fn=Advertising%20and%20selling.pdf – ACCC guide to advertising, covering disclaimers

 

http://www.austlii.edu.au/au/cases/cth/FCA/2001/1326.html

Week 7 - IP for Business'

Intellectual Property (IP) is a very extensive area which can be very important for businesses, either in buying or selling IP, or simply using it. Most businesses come across IP daily in their dealings, with some of the more common forms below:

·         Copyright – Music, movies, computer programs, other media related works

·         Patents – inventions, devices

·         Trademarks – Company specific words, names, signatures, logos

·         Confidential information – Trade secrets, knowledge

 

And yet, for the commonality of IP, some areas can be very complicated, and the ramifications of getting it wrong can be extensive, financially and otherwise. The main problem businesses face with IP is determining ownership and rights. For example, when a business purchases Microsoft Office, they are acquiring a license to use the program, which brings along copyright laws they could unknowingly infringe upon (e.g. distributing copies to friends). If an advertising company designs a logo for you, they actually own the rights to that under trademark law, and can reproduce or change if wanted.

 

Businesses should always be extremely careful when engaging others in regards to IP, and contracts should always set out and define IP relationships. License contracts should set out the rights of the licensee and licensor with provisions if necessary, for example sub-licensing, termination of license and restrictions. Generally, the creator of IP owns it, but employment and contractor & other third party contracts should set out clearly the ownership of any work. IP can also be assigned, effectively selling or giving the IP ownership to another party. Assignment contracts should always be in writing, and need specific words to be included to make it lawful.

 

An entity should always be extremely cautious when buying another business. Due diligence should always take place to assure all IP assumed owned is actually owned, proper contracts and provisions are in place and that there are no infringement actions currently in place. Finally, companies should always seek expert advice in any dealings with IP.

 

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http://www.ipaustralia.gov.au/ - Great information & help with IP

 

http://www.business.gov.au/BusinessTopics/Intellectualproperty/pages/default.aspx - Great information & help with IP

Week 6 - IP (Downloading Music & Movies Online)

 

I went over a friend’s house once to watch a newly released, blockbuster movie. Within a minute of plugging his hard drive into the TV and pressing play, the above image flashed up (obviously an American movie) and I had to laugh at the irony, I knew he hadn’t paid for it when he downloaded it. I felt a quick flash of guilt, then settled down to watch the movie, accepting it as a very minor, harmless crime.

 

With the widespread, accessible, use of internet devices in Australia nowadays, a lot of people prefer to download music, TV shows and movies rather than buying physical copies of the media. Most people will pay for the media before downloading, but many others will download the media through free avenues, as my friend had.

 

Ethically, the choice is somewhat ambiguous. Some think, as I had, that it is a victimless crime, no real theft or harm.  Many, especially those feeling the pinch in the media industries, have raised a massive cry of how they are struggling with the low sales.

In Australia, the legality of the issue is covered under the Copyright Act 1968 (Cth). As long as certain requirements are met (falls under certain broad media definitions, is original, is material, and is produced by a resident of Aus), a piece of work is automatically copyrighted. This means that the copyright holder, generally the author, creator or owner of that work, holds exclusive rights to reproduce, publish or communicate that work. And it doesn’t stop at Australian works either. Under the Copyright (International Protection) Regulations 1969 (Cth), protection equivalent to that defined under the Copyrights Act is given to any works owned by a person residing in a number of countries, including the US and the UK.

 

This means that, when a person or company puts a movie or music up on their website for anyone to access or download, they are infringing copyright law by reproducing that work without permission from the copyright holder. And as the knowing watchers or downloaders of this illegal media, my friend and I were indirectly infringing copyright law as well.

 

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http://www.smh.com.au/news/web/illegal-downloading-hits-epidemic-proportions/2008/09/23/1221935645031.html - Sydney Morning Herald article on the rise of illegal downloading, focusing on everyday Australian’s feelings.

 

http://www.austlii.edu.au/au/legis/cth/consol_act/ca1968133/ - Online version of the Copyright Act 1968 (Cth)

 

http://www.youtube.com/watch?v=1OIqtHBbDWA – Great video of popular musicians debating the free downloads of music

 

http://www.austlii.edu.au/au/legis/cth/consol_reg/cpr1969506/s4.html - Online version of the Copyright (International Protection) Regulations 1969 (Cth)

Week 5 - Contract Terms of Use

ASIC has recently amended new laws that state that courts now have the power to decide whether a particular term in a contract is ‘unfair’ to one party. It can then deem that term void and non-binding. This is a step from ASIC to make companies more accountable for the standard consumer contract forms they supply. Many have stated that an important step, in light of this new crackdown, is to make the terms as transparent and accessible as possible.

This transparency has been a major issue in the United States of late also. There have been numerous examples of problems arising when sites change their terms of use to bring in a major user rights change, without giving adequate notice to users, Facebook for example.

So in light of the recent crackdown by ASIC on terms in a contract, what is a fair amount of notice? There will always be a trade-off between user’s rights, and the practicality for the website operator. In spite of this, however, I do believe it should be the case that, upon trying to access a website, a pop-up would require an agreement to new terms before use of the site. This would mean, without a doubt, users would know of their terms before use. While it may be slightly onerous for the company, I believe a user rights heavy approach such as this is the best way.

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http://writ.news.findlaw.com/ramasastry/20090324.html - Facebook T&C Changes
http://www.hwlebsworth.com.au/latest-news-a-publications/publications/competition-and-consumer/item/907-unfair-contracts-accc-to-bring-test-cases.html - HWL Ebsworth Analysis
http://pub.bna.com/eclr/0675424_071807.pdf - US Case
http://www.asic.gov.au/asic/asic.nsf/byHeadline/Unfair-contract-terms-law?opendocument - ASIC Laws

Week 4 - Megaupload

Recently, employees responsible for the file sharing website MegaUpload were arrested due to authorities believing that MegaUpload utilised various incentive programs and other methods to promote the illegal distribution and sharing of copyrighted material.

The controversial point about this case is how the arrests occurred. New Zealand police, in Auckland, arrested employees, citizens of various European countries, on the basis of warrants issued by the United States. The United States are requesting that the individuals now be extradited to the US to face their charges, on the basis that the company leased servers in California.

So the question is raised about jurisdictions. Where were the crimes committed? Which country can charge those responsible? How far can their judicial powers spread? New Zealand extradition law states that those responsible could only be extradited to the US if the wrong was committed on US territory. Since the crime was committed ‘in the clouds’, everywhere and nowhere, I don’t believe this is really the case.

The results of this case may have far reaching effects, as it will establish just how far countries jurisdictions can reach, and for what reasons. It will set a precedent for these cloud based websites and any crimes they may commit. In any case, I believe international treaties and laws need to be rewritten to keep up with the ever changing and expanding online world.

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http://www.itnews.com.au/Tools/Print.aspx?CIID=287823 - Analysis of Issues
 

Week 3 - Boutique Technology

There has been some cases of fraudulent activities at Boutique Technology (BT), involving payroll and software products. I found a number of practices that could have contributed to these actions as summarised in the table below:

Management has little regard for policy	Rationalisation that if CEO is policy-adverse, he is deserving
Low base pay, big bonuses	Incentive to take short-cuts to make bonus targets
Only one staff member each for accounting, finance & HR	Opportunity for fraud due to no checking or segregation
Focus on low cost output	Pressure to keep time spent low leads to short-cuts

 

I have prepared financials and tax returns for a small company (<10staff), who, to keep costs low, had one person paying and recording all bills and payroll, like in BT. We found a discrepancy in the accounts, and upon looking into it, the client found out that the accounts staff was making payments out to her son’s bank account.

In regards to the above problems, to prevent future fraud, using COBIT practices, I would do the following:

1.      Monitor and evaluate internal controls more effectively in regards to payroll

2.      Implement an IT system that would help raise ‘red flags’

3.      CEO to emphasise improved policies and procedures to staff

4.      ID all inherent risks in the business and seek to implement IT systems to help improve these

 

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Week 2 - WhizBiz Pty Ltd

Whizbiz Pty Ltd (WB) deals extensively with online trading and customer detail databases. The risks inherent in this kind of operation are large, with internal and external fraud opportunities presumably widespread. And yet, the director is taking a negative approach stating that COBIT is too much work for too little benefit, and that it is a ‘one size fits all’ framework, which may not be appropriate.

Focusing on risks alone, WB’s biggest problem in my opinion, one of COBIT’s main objectives is to reduce risk, and the framework would help identify and put in place measures to counter the potential fraud or theft problems. We know that if customer’s details were stolen, or if online theft occurred, the costs to WB would be massive.  The initial and ongoing cost of implementing a framework such as COBIT would be negligible compare to this.

Another point to make is that the domains outlined in COBIT focus on control, rather than the actual execution.  The user is encouraged to simply pick those parts relevant to them and put in place the appropriate measures. The focus of the four domains, and their processes, and COBIT in general, is to help the user implement an effective strategy for their organisation, rather than inform them what they should or shouldn’t be doing.

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Week 1 - ITGC

To meet its corporate plan, it is essential for an organisation to put in place three elements; the people, finance and a properly designed IT system. Whether it is online trading, data storage, communications or simply computerised bookkeeping, IT is a major aspect, and so, I believe, it needs to be controlled and governed accordingly.  In order to do so, a governance framework such as COBIT is important and useful to aid in proper set-up and implementation of IT strategies. Indeed, the goals set out in COBIT are to ensure that the enterprise’s IT sustains and extends the organisation’s strategies and objectives.

COBIT provides users with a framework; a set of practices, guidelines and measures that, when implemented, aim to benefit the companies IT systems across five different areas:

1.      Strategic Alignment – Aligning IT with organisation as a whole

2.      Value Delivery – Enables the business and maximises benefits

3.      Risk Management – IT risks are managed appropriately

4.      Performance Measurement – Accurate feedback on operations

5.      Resource Management – IT resources are managed appropriately

 

As you can see, a proper IT system such as COBIT will encompass all areas of IT with the forefront goal of aligning IT operations to benefit the organisation as a whole, and help meet plans and objectives.

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