Fraud a 'continuing' trend in broking: ASIC

Fraudsters cost Australia a whopping $372.7 million last year alone - and ASIC says the issue is a serious one within the mortgage broking industry



Fraudsters cost Australia a whopping $372.7 million last year alone - and ASIC says the issue is a serious one within the mortgage broking industry.

ASIC spokesperson, Daniel Wright, says the organisation is seeing a ‘continuing’ trend of fraud within the mortgage broking industry and says it’s the category of misconduct involving brokers that is, in fact, most regularly reported to ASIC.

“ASIC is particularly concerned with instances where persons have engaged in fraud or other misconduct relating to information provided in loan applications. Since the commencement of the NCCP, ASIC has banned six persons from engaging in credit activities for such conduct and has 18 other current investigations. ASIC has also secured criminal charges against one finance broker under the responsible lending provisions of the NCCP.”

But MFAA CEO, Phil Naylor, argues that fraud remains a relative rarity in the mortgage broking industry, accouning for less than a handful of finance industry cases.

“From MFAA’s experience lending fraud occurs, but based on our expulsions – 3 last year - it is clearly not a major issue for brokers. All lenders, aggregators and good brokers have systems and checks and balances to mitigate against fraud.”

Yet, a report released by KPMG last week - the very same week that ASIC clamped down on two rogue brokers - brings the issue to a head.

Finance, perhaps unsurprisingly, boasts the highest fraud rate of any industry in Australia, according to KPMG’s 2013 Survey of Fraud, Bribery and Corruption in Australia and New Zealand. The report found that the financial services industry accounted for 86% of all fraud in Australia and New Zealand in 2012. Twenty-five per cent of fraudsters came from outside the company they victimised.

But who are these dodgy dealers? And what needs to be done to stop them ruining the industry’s reputation?

The answer to the first questions is simple – sort of. According to KPMG, the typical fraudster is male (men are three times more likely to commit a fraud than women), earns less than $100,000p/a (though this is slowly starting to change, with a 92% increase in the number of offenders earning between $100-200,000) and holds a non-managerial position within his/her company.

Furthermore, the KPMG report shows most have a clean criminal background, proving that due diligence, including insolvency, track record and integrity checks, needs to be robust.

“Organisations need to reconsider broadening their integrity screening processes from not only of applicants but also to include agents, suppliers and other business partners, particularly given tightening anti-bribery and corruption legislation around the world.”

KPMG also says the nature of the individual fraudster and the underlying causes driving their illegal activities constantly alters.

“Just as fraud is an ever-evolving phenomenon, the fraudster is like a chameleon, displaying changing characteristics as the environment around them changes…External parties continue to be the bane of the financial services…responsible for the majority of overall fraud by value and by number of incidents.”

The continuing prevalence of third party fraud generates real questions about the application of fraud controls, perhaps suggesting more robust internal frameworks at the cost of less scrutiny outside the front door.

“This strongly reinforces the need for better due diligence around third parties. The trend is less evident in major fraud situations, where internal perpetrators are most likely to defraud organisations. The 2012 survey indicated more respondent organisations were experiencing major fraud by insiders.”

KPMG reinforces the importance of prevention when it comes to dealing with fraudulent activity, saying that staff-screening, developing a corporate code of ethics, renewing/improving internal controls and conducting fraud awareness training are the most popular methods used to nip the problem in the bud.

“The focus on fraud awareness training is particularly encouraging, given the high rate of respondent organisations reporting a low awareness of fraud reporting services internally and externally.”

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