While most employees, clients and service providers act ethically, fraud and corruption can affect organisations of any type and size. Many organisations only become concerned about fraud and corruption after a major incident has occurred, and typically only after serious financial and reputational damage has been suffered. It is important that schools are aware of what fraud and corruption may look like, what their obligations are and what measures are appropriate to help reduce the risk of falling victim.

What Is Fraud and Corruption?

Fraud

The Australian Standard for fraud and corruption, AS 8001 2021 Fraud and Corruption Control (Standard) defines fraud as:

“dishonest activity causing actual or potential gain or loss to any person or organization including theft of moneys or other property by persons internal and/or external to the organization and/or where deception is used at the time, immediately before or immediately following the activity”.

Common examples of fraud include:

• theft of plant, equipment or inventory by staff
• cyber fraud by external parties impersonating existing suppliers and forwarding false bank account details
• creating a fictitious invoice claiming payment for goods or services not delivered, or exaggerating the value of goods or services actually provided
• false expense claims
• misappropriating or misdirecting payments received by the organisation
• falsification of the organisation’s financial statements to obtain an improper financial benefit
• forged qualifications.

Fraudulent acts can be committed by directors or other senior members of an organisation to benefit the organisation (e.g. retaining revenue received in error or misstating accounting information for an improper purpose).

Corruption 

The Standard defines corruption as:

“dishonest activity in which a person associated with an organisation (e.g. director, executive, manager, employee or contractor) acts contrary to the interests of the organisation and abuses their position of trust in order to achieve personal advantage or advantage for another person or organisation”.

Common examples of corruption include:

• paying or receiving secret commissions (bribes), which may be money or some other personal favour or benefit to the recipient (e.g., receiving payment to intervene in admissions and secure a place at the school)
• misuse of an individual’s position within the organisation in order to gain some form of benefit
• release of confidential information in exchange for some form of benefit or advantage
• serious nepotism and cronyism where the appointee is inadequately qualified to perform the role to which they have been appointed.
  
  

Why Is Fraud and Corruption Control Important?

According to the Australian Charities and Not-For-Profits Commission (ACNC), surveys have shown that between 10-15 per cent of not-for-profits had suffered fraud in the two years before reporting. The loss suffered by not-for-profits as a result of fraud averaged $23,000 per incident; this figure could be higher though, as 42 per cent of reports indicate that the investigations only uncovered part of the fraudulent activity.

Acts of fraud and corruption can affect a school’s cashflow, reputation and relationships with stakeholders (including students/parents and businesses that engage with the school). Without putting proper systems in place to reduce the risk and impact of fraud, schools are left vulnerable to these impacts.

What Obligations Do Schools Have to Prevent Fraud and Corruption?

Many independent schools in Australia are charity organisations and are required to adhere to the Governance Standards set out in the Australian Charities and Not‑for‑profits Commission Regulations 2022 (Cth). Governance Standard 5 requires a charity to take reasonable steps to ensure that the members of its governing body:

• act with reasonable care and diligence
• act honestly and fairly in the best interests of the charity and its purpose
• do not misuse their position or the information they obtain
• disclose any conflicts of interest
• ensure the financial affairs of the charity are managed responsibly
• do not allow the charity to operate while insolvent.
  

What Can Schools Do to Prevent Fraud and Corruption?

Schools must take proactive steps to prevent fraud and corruption. Implementing a Fraud and Corruption Control System (FCCS) can help in significantly reducing a school’s exposure to fraud and corruption risk. An FCCS should include all the actions that the organisation will take to implement and monitor fraud and corruption within the organisation. Fraud and corruption should also be integrated into the organisation’s risk management system as fraud and corruption are business risks that are controllable by the application of risk management principles (2.10.1 of the Standard).

While the steps below are useful as a guide, they may not suit every school. Individual assessments should be undertaken to determine what steps are best in your circumstances.

Planning and Resourcing

Ensuring that proper planning and resourcing occurs before an incident is key to a successful anti-fraud/anti-corruption plan. Proper planning and resourcing can include:

• creating a fraud and corruption plan
• ensuring that a senior member of staff is appointed responsibility for managing the Fraud and Corruption Plan
• undertaking appropriate risk assessments
• ensuring that staff complete fraud and corruption awareness training
• recording and collating fraud and corruption incident reports
• conducting investigations into fraud and corruption where appropriate.

Prevention

Preventing fraud and corruption is reliant on establishing a sound integrity framework within an organisation. A Code of Conduct is an organisation’s ethical foundation. However, a comprehensive integrity framework should also include the following:

• gifts, conflicts of interest, recruitment, discipline and termination policies
• communications and training for staff and managers to ensure awareness of appropriate procedures and behaviours, as well as areas of risk
• procurement procedures for when dealing with significant transactions
• a Complaints Handling Program and policies for both external or internal complaints
• a Whistleblower Program to manage serious wrongdoing outside of regular business channels.

Detection

While the goal of a FCCS is to prevent fraud and corruption from occurring, it is crucial to also ensure that, if it does occur, it is detected as soon as possible to minimise the financial and reputational impact it has on the school. Schools should implement detection methods that are most appropriate for their needs. These may include:

• internal accounting reviews to detect anomalies in past transactions
• the use of external auditors to review processes and compliance and detect anomalies
• ensuring that staff know to notify the school of any suspected fraud or corruption.

Common warning signs that fraud or corruption may be taking place include:

• unauthorised changes to systems or practices of work
• missing documentation relating to financial transactions
• undue secrecy
• failure to conduct reference checks on staff prior to appointment.
  

Response

Schools should implement clear procedures to respond to incidents where apparent or suspected fraud or corruption have been detected. These may include procedures for:

• investigating incidents
• logging incidents
• reporting incidents to police and/or other external agencies
• internal reviews following the detection of fraud.

Conclusion

Unfortunately, no organisation is immune to fraud or corruption. While it is often only thought of reactively, by taking some proactive measures, schools can reduce the risks of fraud and corruption incidents occurring in their school. If a fraud or corruption incident does occur, having procedures in place to detect and respond to the incident early on can help to minimise the financial and reputational damage suffered by your school.