Advertising Fraud

Fraud and falsehood only dread examination. Truth invites it.

At McLeod Governance, we love a good fraud story.

An Australian fraud a couple of years ago caught our attention … not so much for the facts of the case but for the response of the company that was the victim of the fraud.

Lets start with the facts of the case and then make your mind up as to whether you think that the post fraud publicity was handled well.

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The payroll manager of Australian whitegoods and electrical retailer Clive Peeters admitted she used $20 million in company funds on a spending spree, buying more than 40 properties.

Sonya Causer spent the equivalent of a year’s company earnings secretly compiling an impressive portfolio.

In total she bought 43 properties.

Her 18-month spree from the listed retailer – which has 49 stores and 1300 staff – was worth more than the pre-tax earnings of $17.3 million in the 2008 financial year.

She also spent $166,500 on three cars, including a luxury $105,000 Audi four-wheel-drive, a Holden station wagon and a Toyota LandCruiser.

But her double life came crashing down, when she was confronted by managing director Greg Smith and she admitted to using a loophole in the company’s internet banking with National Australia Bank to steal from the company.

”I have stuffed up big time and just want to curl up in a ball and disappear,” she told Mr Smith in one of their meetings.

Mr Smith said he was hopeful the company would be able to recoup most of the losses because Ms Causer had confessed she had stolen the funds and agreed to transfer the Victorian properties back to the company. Many of the homes had been generating rental income, he said.

Ms Causer has admitted to falsifying payroll records, transferring cash to her bank account.

Until the full scale of the fraud was uncovered by auditors , Ms Causer, who has worked at the Clive Peeters Melbourne head office for three years, tried to cover up and then play down her role.

She was able to transfer company money to her bank account, and those of her company, M & S Business Enterprises, between November 2007 and June 2009 because she was a signatory to the company’s account, as a senior member of the finance team. Her theft was not immediately apparent because she attempted to cover her trail by changing financial records.

Ms Causer started snapping up her portfolio just seven months after she was promoted to payroll manager in April 2007.

The alarm was raised on the missing money on July 29 when one of her colleagues, another Clive Peeters accountant, noticed a $2 million variation between two company ledgers. Only after further investigation by the auditors did the company discover there was a much larger hole.

The company told the Australian Securities Exchange at the end of July that it had found an unexplained $7 million hole in its accounts. This later grew to $20 million.

Ms Causer initially purported to assist the company’s auditors, Deloitte, in the investigation of her own fraud.

Only after she attempted to cover her money trail by changing figures on internal accounting systems did she admit to management she had falsified financial documents.

Ms Causer initially claimed she had only falsified entries in an accounting ledger to ”help the company”, only later confessing to the full extent of the theft in a meeting with Mr Smith.

As payroll manager, Ms Causer had a salary of $125,000.

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As frauds go – that is relatively run of the mill.

What Clive Peeters did next isn’t so run of the mill.

In most major Australian newspapers, Clive Peeters took out a full page advertisement as an open letter to its customers.

In essence it was an advertisement both for their new product range AND the fraud that had been committed against it.

In the advertisement it said “in the last few weeks we have weathered an unexpected storm – the misappropriation of Company funds by an employee”.

That line got McLeod Governance thinking.

Why would you advertise that you have had a fraud?

What is the benefit to the organisation to tell the world that you have sufficiently lax internal controls that a whole year’s profit could be put into jeopardy.

Those of your stakeholders who cared about the fraud (ie – investors seeking the highest return) would already be aware of it.

Those of your stakeholders who couldn’t care less about the fraud (ie – customers seeking the lowest price) would benefit how from being made aware about it now?

Post based in part on “Clive Peeters left reeling by $20m sting” The Age August 12th 2009

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