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Counterinsurgency is the new grim reality for business. In fact, some competitors or disgruntled stakeholders may welcome a crisis occurring to you and your business.

In an idealistic world, if you were suffering a crisis situation with litigation, this would run efficiently: you would have plenty of funds to pay for your lawyers; you would not have to contend with financiers or shareholders, you would not need to worry about trade suppliers withdrawing their trade credit or employees who might perform a mass exodus during tough times; and finally there would be no concern with reputational damage, as the media and members of the general public would refrain from commenting about issues already in or about to be before the courts.

Unfortunately, the realities of litigation and crisis situations are somewhat different from the ideal as set out above. You would require expert client care to address all your stakeholders concerns. This does not simply begin and end with looking after only the legal aspects of the case. Today, we are witnessing the age of digital media, where tweets, comments and blog posts can go viral at incredible speed, similarly in matters of high public interest the media has an insatiable demand for information.

A battle exists not only in the court room, but in the court of public opinion. You may if you are fortunate enough, make it to the finish line and win the battle in the court room. However, in all too many situations you are more likely than not to haemorrhage; if you do not get on top of the gossip, innuendo and onslaught from all directions, resulting in your inability to see through with obtaining justice or inability to fund the best defence.

At best, failure to address the court of public opinion will leave you badly wounded or tarnished with your reputation. A win in the court room may not at the end be able to salvage the reputational damage, even years later. For a myriad of reasons there are sometimes competitors or other disgruntled parties that wage an insurgency battle to hurt your business, sometimes with malicious intentions to win dominance or other times in a misguiding manner.

Brilliant Approach to Counterinsurgency

One of the greatest military generals of our time is Retired General David H. Petraeus of the US Army, his strategy used in Iraq to turn the tide in the war and combat counterinsurgency is some of guiding approaches (amongst others) that we use in ensuring survival for our clients. In his article (September-October 2008 Military Review), he provides key advice for his military strategy:

“Secure and serve the population
Live among the people
Hold areas that have been secured
Pursue the enemy relentlessly
Employ all assets to isolate and defeat the terrorists and insurgents
Generate unity of effort
Promote reconciliation
Defeat the network, not just the attack
Foster Iraqi legitimacy
Punch above your weight class
Employ money as a weapon system
Fight for intelligence
Walk
Understand the neighbourhood
Build relationships
Look for sustainable solutions
Maintain continuity and tempo through transitions
Manage expectations
Be first with the truth
Fight the information war relentlessly
Live our values
Exercise initiative
Empower subordinates
Prepare for and exploit opportunities
Learn and adapt”

Litigation Public Relations

Litigation Public Relations (LPR) is a practice we saw originate in the United States and we are one of the few experts to specialise in this area in Australia. It is a highly specialised form of public relations, which goes far further than a press release, where we work closely with your lawyers. It acts as a powerful persuasive voice, to combat negative publicity with public opinion.

What are the goals of LPR?

Counteract negative publicity (fairness for both sides, by attempting to balance the media coverage);
Make the viewpoint of the client known;
Guide the media and the public to understand the legal process or issues;
Diffuse a hostile environment; and
Where possible, try to resolve the conflict by placing pressure on the other side, which may be better inclined (when appropriate) to favourably settle or drop charges, due to their actions being visible by all stakeholders.

Often fraudsters are driven by pressure; this can include the need to hold up an ailing business, personal relationships, gambling habits, extravagant lifestyles and other emotional circumstances or addictive traits.

Fraud can never be completely eradicated; however, safeguards can and should be put in place to minimise risk of it occurring and it accordingly impacting upon the business on a financial, operational or reputational level.

Evidence has shown, most frauds start off small and then when gone unnoticed escalates from there. Often fraud is not committed simply over weeks, rather over a period of a year or longer. Many of those who commit fraud do not start off with an intention of doing so. In some cases the fraudster morally justifies their behaviour because of beliefs that they ‘are being paid low’ or even that they ‘have far greater need than the company who already have enough’.

Demetri Hughes outlines several common fraud indicators learnt from the cases presented in ‘Part 2: Case Studies’, where fraud might be occurring in an organisation:

“Good indicators that sound alarm bells that fraud is a risk, include:

Poorly organised offices and/or accounting systems.
Poorly managed or unquestioning obedience of staff.
Low morale and/or high staff turnover.
Complex structures.
Remote or poorly supervised locations.
Unexplained expensive lifestyle of a staff member.
Untaken holidays, particularly when the person is the bookkeeper or who has access to money.”

Demetri continues by discussing technological solutions used to combat spending fraud.

“Businesses are increasingly looking to technology to implement safeguards across the organisation to protect themselves against fraud, ways to do so include implementing usage of:

>>> Card reconciliation software:
Ordinarily purchasing cards allow staff to obtain goods/services directly from a supplier, bypassing the normal procurement processes (paperwork then needs to be reconciled). Software should be used to automate this process, providing greater control over spend with suspicious spending or unusual spending patterns able to be identified quickly.

>>> Spend analytics software:
Usage of software can be implemented providing a single view of organisation expenditure, allowing for quick detection of anomalies. Accidental errors that this solution would easily highlight include, billing mistakes and invoice miscalculations, which can then be traced back to the managers, also allowing for detection of potential weak spots with loopholes accessible by fraudsters.

>>> Electronic document management:
If the collapse of Enron in the United States of America demonstrated anything, it was how easily bad agents can destroy paper documentation. Additionally, paper documents are easily doctored by some to create false audit trails.

By using a secure electronic documentation management system, this enables for all invoices, purchase orders and financial documents to be imaged and stored in an electronic archive. Accordingly, these documents cannot be altered, shredded or ‘lost’, as such creating comprehensive audit trail.”

Fraud has the potential to destroy long-standing and otherwise strong companies. However, it does not have to have that kind of power.

Companies can and should implement strong checks and balances to mitigate risk of fraud, so that if a fraud were to take place it can be detected when it is still minor in size, before it escalates in severity, whereby the fraudster becomes more brazen to commit very large fraud, resulting in the company losing significant amounts of money. Similarly, strong brand protection planning strategies, allow organisations to have a comprehensive but actionable plan in place, to address stakeholder concerns quickly and smoothly.

Having extensive Issues & Crisis Management and Risk Mitigation planning, processes and systems in place allow businesses to return back to the normal order of operations, without the complete eroding of confidence when fraud does strike. There is a pressing managerial decision to be had, spend some funds now to ensure planning and systems are in place to combat fraud or alternatively, face one of the greatest existential threats an organisation can come up against, that likely would cost significantly more.

If a business believes fraud is already taking place, it is critical to obtain professional advice immediately. 1Up Communications is experienced in working with a clients’ senior management, lawyers and other stakeholders to implement a rapid response plan to handle fraud.

In Australia, within the last month alone, newspapers have written on the topic of fraud over 841 times. This is an astonishing number when considering how many other instances of fraud are never picked up on by newspapers. Selected stories over the last week have included:

Alexander, H. (2017, August 31). Coca-Cola executive Bryan Pereira jailed four years for receiving corrupt payments. The Sydney Morning Herald. Car fleet manager for Coca-Cola established secret kickback commission system; between 2003 and 2013 this scheme netted Pereira $859,000. In 2014, he set up a shelf company in name of accountant for ‘inspection works’, netted Pereira further $504,900.

Bryan Pereira (Image courtesy The Sydney Morning Herald)

Allen, G. (2017, August 29). Silver Chef serves up underdone profits. The Australian. November 2016, some Silver Chef customers used fake identities and vendors were able to siphon off $2.3 million worth of loans intended for gym equipment and air compressors.

(Image courtesy Financial Review)

Ferguson, A. (2017, August 28). Insolvency reforms must deliver. The Australian Financial Review. Disgraced liquidator Stuart Ariff was sentenced to jail for committing 19 counts of criminal fraud. Those activities along with the activities of other rogue liquidators led to insolvency reforms. ASIC Commissioner John Price believes the reforms increase powers to the regulator and level of education. A senate inquiry having found the industry was susceptible to ‘fee gouging, conflicts of interest, lacking transparency and riddled with conflicts’. Liquidators are required to operate beyond reproach as officers of the court.

ASIC commissioner John Price (Image courtesy Financial Review)

O’Reilly, M. (2017, August 26). Barossa man returns to court. Barossa & Light Herald. Former business manager for St Jakobi Lutheran School, Travis David Saegenschnitter, alleged to have taken a total of $1,003,638 during a three-year period from 2013 to 2016.

Travis Saegenschnitter (Image courtesy Barossa Herald)

Towell, N. & McIlroy, T. (2017, August 23). CSIRO sacks senior executive sacked over card ‘breach’. The Canberra Times. CSIRO terminated the employment of Mark Wallis, General Manager for Business and Infrastructure Services (senior executive role), over alleged fraud involving an official credit card. His matter has been referred to the federal police. Wallis was executive in charge of one of the Federal Government’s biggest land deals, with the proceeds of the massive deal meant to bolster research efforts of the cash-strapped organisation.

Mark Wallis (Image courtesy Canberra Times)

The preceding examples were only a minor snapshot highlighting the significant impact fraud has on a daily basis across all types of businesses. Two other noteworthy examples (for their simplicity but impact) taken over recent years and their key insights, include:

Manager Fraud: Assistant club manager accused of stealing almost $450,000 from a well-known regional Club, taken from the Clubs pokies, TAB and Keno accounts. Gaming reports were fabricated to disguise away from Office of Fair Trading.

The husband and wife were able to dominate the Club, both serving positions on the executive committee; they were secretive of accounting functions; external accountants were eased out; gaming accounts were able to be replenished using the Clubs general account, both husband and wife were able to be signatories authorised to make electronic transfers on behalf of the Club; the Executive of the Club were very hands off.

The matter was only discovered once the husband and wife had taken leave, the accounts went into negative (the gaming accounts should never). This could have been avoided had 1) the Executive Committee owners taken greater interest in the management; 2) both members of the couple in a relationship, should not have been able to conduct electronic transfers without approval from an independent committee member; and 3) an external party should have been responsible for the reporting or at the very least handling the monthly reconciliations.

Secretary Fraud: A busy Barristers Chambers (legal) in Brisbane had in excess of $500,000 stolen by their secretary over an eight year period.

Significant fraud was finally realised when the barrister’s accountant questioned a large shortfall in the PAYG for the ATO. The secretary had been overpaying herself, when the solicitors (client of the barristers) who made payment the secretary deposited into the Chambers account, before making payments back to her through the Chambers general account. This should have been deposited into the respective barrister’s bank accounts.

In hindsight, issues were able to continue owing to 1) the poor record keeping (fraud could have been significantly more than realised); 2) the secretary was allowed to dominate the Chambers with a defensive behaviour; 3) no controls or reviews were in place concerning the secretary’s use of electronic bank systems; and 4) no procedures existed with the secretary instead making up her own.

Fraud (embezzlement) was only discovered when the senior barrister took a call, when passing through the reception from the accountant, whilst the secretary was away at lunch. The owners should have played a greater interest in the business, restrictions should have existed for signing of cheques/electronic transfers, and an independent bookkeeper to perform bank reconciliations could likely have avoided the fraud.

There is no doubt about it – fraud is incredibly costly, distressing and can potentially destroy a brand or worse yet, an entire business. It does not matter whether you are a lawyer, accountant, top CEO, club owner or government official, the temptation for people around us is always there. People are people after all and as such, are susceptible to temptations for a variety of reasons; therefore, all aspects of an organisation’s operations have to be safeguarded.

Call fraud what you will – a moment of weakness, situational, mental illness or just plain greed – it has dire consequences to a business and its profitability. According to a 2017 survey commissioned by KPMG, in the six-month period alone between April 2016 to September 2016, fraud rose by 16 percent to a total of $442 million, an increase from $381 million in the previous six month period.

Other key fraud related findings occurring in Australia, as detailed in the report, included:

36% attributable to company management, with 20% performed by professional criminals.
28% by 46 to 54 year olds and 25% carried out by people below 36 years old; evenly split across age groups.
40% takes place in Australia over a five year period before being discovered.
62% is motivated by personal greed.
55% reported in Australia as taking place in Queensland.

Leading Australian Issues and Crisis Management expert, Demetri Hughes, explains some of the common red flags of susceptibility for fraud taking place.

“Too often and regrettably, we are brought in to advise only after a significant fraud has already taken place.

“Frequently, unusual behaviour by individuals can be detected early on, provided matters deserving of further enquiry receive that attention, however often businesses have left it unchecked for a variety of reasons. These reasons sometimes include, fear by employees of whistleblowing, fear of being wrong, apathy, and blind trust owing to the longevity of the employee or their ‘appearance not being that of a fraudster’.

“It is safe to advise, having been a crisis management practitioner for years now, the visual appeal or general look of the individual has little to no bearing on whether a person has committed or has a susceptibility to commit fraud. However, there are a variety of other red flags serving as a good indicator that something might be very askew. Selected examples include:

Executives being provided with financial statements or records in the form of an excel spreadsheet by the internal finance person and/or by the external accountant.
An accountant who always provides excuses for not providing information.
Only receiving projections instead of the complete financial statements.
An unusual amount of credit notes being used repeatedly.
Suppliers that are being dealt with outside of the purchasing system.
Bank reconciliation which has unexplained balancing items.
Unusual transactions or documents, as well as staff who do not provide receipts or explanations for purchases on the company credit cards.
Sudden withdrawal of customers and/or suppliers.”

Those knowledgeable of events in Queensland (Australia) in 2013 would likely have heard of a fake Tahitian prince by the name of Joel Morehu-Barlow. He fraudulently siphoned off $16.69 million over a four-year period from Queensland Health – the single greatest fraud in the history of the state’s public sector.

For those who have not heard of the ‘Tahitian prince’, Barlow was a finance officer who used proceeds from his $16.69 million theft, to very publicly spend $1.13 million on travel and accommodation; $636,740 on Louis Vuitton products; and significant expenditure on extravagant parties, such as a birthday celebration at Brisbane’s Cloudland which alone cost in excess of $130,000. It was only once Barlow’s fraud was finally brought to justice in 2013: he was sentenced to 14 years in jail.

The ease in which Barlow was able to siphon off large chunks of public money, whilst passing himself off as a Tahitian prince to explain his big-spending lifestyle, is to this day a huge stain on all concerned.

A September 2013 Crime and Misconduct Commission Report presented findings that Barlow’s large thefts could have been avoided in the early days when the fraudulent activities were relatively small, not to mention pre-employment screening would have found he lied about his qualifications and was in fact wanted for questioning in relation to fraud with an earlier employer in New Zealand.

What is clear from the Barlow example is that fraud can impact even the very largest of organisations, even a State Government department. Fraud avoidance in businesses of all sizes relies upon a system of safeguards and culture of welcoming reporting (or whistle-blowing), without any fear of retribution.

Sources:

Crime & Misconduct Commission. (2013, September n.d.). Fraud, financial management and accountability in the Queensland public sector – An examination of how a $16.69 million fraud was committed on Queensland Health. Retrieved from http://bit.ly/2iEbMCI
Killoran & Chamberlin. (2017, August 24). Fake prince Joel Morehu-Barlow may be released by Christmas. The Courier Mail. Retrieved from http://bit.ly/2vzSlx1
KPMG. (2017, January 25). KPMG survey reveals surge in fraud in Australia. Retrieved from http://bit.ly/2wG8O6o