1.Fraud Committed by Sonya Causer
1.1 Fraud Triangle
There are three key elements must be concurrently present in order for a person to engage in
fraud: Perceived Pressure, Perceived Opportunity and Rationalisation.
...
1.Fraud Committed by Sonya Causer
1.1 Fraud Triangle
There are three key elements must be concurrently present in order for a person to engage in
fraud: Perceived Pressure, Perceived Opportunity and Rationalisation.
(Albrecht/Albrecht/Albrecht/Zimbelman, 2016)
1.1.1 Perceived Pressure
Sonya Causer was under the financial pressure of providing for the lifelong expenses of her two
autistic children and to fund her obsessions from online trading which started off from teddy
bears and escalating into property trading (Butler, 2010).
The various life circumstances of Causer being pressured into escaping reality by seeking an
alternative lifestyle. The factors include her two autistic children who require costly lifelong
intensive medical care and supervision, an ailing marriage with her cannabis addicted husband
who quit his previous job to look after the children and lastly, her lack of any social interactions.
This can be observed with Causer stating that she derived joy not from the properties but rather
from negotiations and dealings with people for the properties. Her obsession with trading and
delusions of herself being a “property wizard” can be seen as a sign of escapade by Causer
from her otherwise mundane lifestyle (Winterford 2010, Butler 2010 & R v Causer 2010).
1.1.2 Perceived Opportunities
There was a lack of internal controls in Clive Peeters’s accounting procedures such as lack of
segregation of duties and a faulty system of authorisation gave birth to ample opportunities for
fraud to occur. This is clearly shown in Causer’s case whereby she was given full control over
the company’s payroll system upon her promotion with no need for a second individual to
countersign or approve of changes and payments made to the accounts by Causer. Causer was
able to freely change Clive Peeters’s clients account numbers to forward payments to herself (R
v Causer 2010, Carson and Battersby 2009).
With the lack of proper procedures in place and roles with conflicting interests under Causer’s
sole charge, she was able to misappropriate the company’s assets by changing account details
to those under her control when payments are approved to fund her personal activities such as
the purchase of real estates and luxury goods out of her means while easily concealing her
tracks (Berglund, 2017).
If there was a second individual required for changes and payments made or if there was a
clear segregation of duties, the fraud mentioned would have been harder to come to fruition.
1.1.3 Rationalisation
In our opinion, there is only inkling of Causer’s thought process which was close to
rationalisation is to provide for her children lifelong medical expenses which were costly. For
Causer’s case, she largely operated under the delusion that she was a “property wizard” but did
it mainly for the social interactions through negotiations and dealings with the other parties,
which was her only source of joy in life. We think that logical thinking cannot be applied for
Causer’s case as she had been diagnosed with delusional disorder by professional
psychologist, Mr. Jeffery Cummins, therefore the lack of solid evidence for rationalisation by
Causer (Butler, 2010 & R v Causer, 2010).
1.2 The Fraud Scale
The severe lack of controls in Clive Peteers’s accounting systems played a huge role for the
fraud to come to fruition. Even if Causer was not the perpetrator, anyone else in her position
with low personal integrity would have and could have easily committed the fraud similarly, if not
on a much higher scale.
Additionally, the high pressures Causer faced from her less than desirable situation and the
unstable mental state that she was in played a large role in causing Causer to act out the fraud.
Causer had demonstrated low personal integrity by abusing the loophole she discovered in the
company’s internal controls on numerous occasions, to fuel her obsession of property trading.
Should Causer have had high personal integrity instead, what she would have done would be to
report to higher management of the loopholes discovered, to prevent possible damages from
fruition.
Based on the fraud scale, with many opportunities, high pressure and possible low integrity,
Causer’s chances to commit fraud is very high.
(Appendix 1)
2. Falsification of Accounts
First Element:
Causer was first employed by Clive Peeters at their head office as a Senior Financial Officer
around March 2006. Shortly after, Causer was promoted and her duties expanded and was
given full charge over the company’s payroll system. The level of authority given to Causer even
allowed her to change payee’s account details on a whim (Berglund, 2017).
Second and Third Element:
Causer had acted out her whims on many occasions without concerns about the consequences
that her actions might bring about and siphoned Clive Peeters’s assets to fund her activities.
Causer had accomplished the fraud by exercising her authority over Clive Peeters’s payroll
system while exploiting the loophole that she found in company’s internet banking system. This
was done with the intention to defraud her employer in order to fund her “property guru”
persona. (R v Causer, 2010).
Fourth Element:
Causer substituted the client’s account number to an account under her charge whenever the
payment was approved for her fraudulent acts. The account details were then swapped back to
the original account when the funds were transferred (R v Causer, 2010).
Fifth Element:
As Causer had full control over the payroll process, she was able to conceal her tracks easily by
manipulating Clive Peeters’s “online banking records, the general ledger and management
reporting”. Overall, Causer misappropriated $19.365 million through 90 withdrawals involving
125 payments made to 8 accounts under her control (Berglund, 2017).
Sixth Element:
Causer had funneled the funds from Clive Peeters’s accounts into those which were under her
name, through means of altering clients’ account details after approval was given for payments
to be made.
(Appendix 2)
3. Collapse of Clive Peeters
Clive Peeters’s collapse was not entirely due to Causer’s fraudulent act as there were other
factors occurring throughout the years which contributed to the fall. However, the fraudulent act
started a snowballing effect which caused the downfall of Clive Peeters.
Reducing Cost to Remain Profitable
Before Causer’s fraud was discovered, Clive Peeters went on a cost-cutting spree such as
retrenchment and forced redundancies, aborting staff parties and reducing inventory, in a bid to
curb their cash flow issues. Clive Peeters’s reduction of inventories by close to $24million meant
that the company received less discounts on their purchases. A higher purchase price meant
increased retail prices to remain profitable. Therefore, Clive Peeters lost their competitiveness in
the industry the moment they were unable to purchase enough goods to earn the rebates from
manufacturers and importers (Battersby and Mcilwraith, 2009).
Poor Financial Planning
Clive Peeters aggressively expanded during 2008 which resulted in net debt increasing to
almost $30million, this was despite the knowledge that they were facing serious cash flow
issues and were having troubles repaying debt. With a substantial increase in debt, it would
mean an equally large increase in interest expense which is illogical in face of serious cash flow
issues (Annual Report 2008, Page 21).
Stiff Competition within the Industry
Even though both Clive Peeters and Harvey Norman are both local companies, Clive Peeters
only operates in Australia whereas Harvey Norman is an international company. Therefore, Clive
Peeters is disadvantaged in terms of financing capabilities as compared to Harvey Norman.
Clive Peeters is not able to greatly differentiate themselves from Harvey Norman as they are
neither a niche business nor do they provide extra value-added services. Thereby, as soon as
selling price increases, consumers would have no qualms in flocking over to Harvey Norman
who provides identical services (Thomas, 2010).
Failure to Raise Capital through Share Issuance
KPMG suggested for Clive Peeter to raise working capital through issuing shares but the
investors decided to withdraw at the last moment (McIlwraith, 2010). This could be due to the
interested investors losing their confidence in Clive Peeters managements’ capabilities due to
the huge scandal. Due to failure of injecting working capital into the company, Clive Peeters’s
dire financial situation took a turn for the worst when they started to become unable to even
generate enough profits to pay of interest expenses (Anubisengraving, 2017 & Annual Report
2009, Page 8-10).
In conclusion, while Causer did commit substantial fraud, she might not have been the only one
within Clive Peeters to have committed fraud. This can be seen with the contribution margin
increase from 26.36% in FY 2007 to 26.38% in FY 2008, during a period of severe cash flow
issues which led to decreased discounts from suppliers with lowered purchases. This may be
indicative of management fraud, as Causer only had access to the payroll systems. An
assumption would be that the Management were seeking private investments for capital
injections to alleviate cash flow issues and required healthier financial figures to gain a higher
bargaining ground. Also, due to Management fraud occurring simultaneously, Management may
overlook cash flow issues resulting from Causer’s fraud and assume it as having resulted from
their own Management fraud. Hence, it may have been the collective fraud which ultimately
caused Clive Peeters’s collapse.
Calculation for Additional Sales
Scenario 1:
The amount of loss of $4,815,000 arises from the loss on sale of properties and assets of
$3,000,000 and misappropriation expenses of $1,815,000 which included transaction, legal and
other costs. Thus, the additional sales needed to recover the loss of $4,815,000 will be
$218,863,636.40. (Annual Report 2009, Page 17 & 52)
Scenario 2:
If Clive Peeters is unable to recover any losses from the fraud, they are required to generate
additional sales of $880,262,181.80 in order to cover the amount stolen by Causer.
4. Analytical Method
4.1 Horizontal Analysis
4.1.1 Financial Year 2008
● Income Statement
Revenue from Sale of Goods, Gross Profit and Other Income have increased by 16.98%,
17.07% and 266.67% respectively. These numbers are reflective of Clive Peeters business
expansion plans. Management should have investigated the causes for decrease of 24.07% in
Profit for the Period, which was due to Sales, General and Administrative expenses haven risen
by 23.12%, over 35% more than the increase in Gross Profit. Hence, the overall expense should
be broken down into individual accounts for investigation. Investigations would have led the
Management to the sharp increase in the payroll systems which Causer was given charge of
and Causer’s schemes would have been uncovered.
The account with material changes are Occupancy, Administration, Finance costs, Sales and
Marketing. Of which, the increase in Finance and Occupancy can be linked back to Clive
Peeters obtaining huge loans for expansions, which would naturally result in greater costs for
these areas. However, should Clive Peeters have paid closer attention to the increase in
Administration and Sales and Marketing expenses, which would have allowed for management
to notice substantial expenses which resulted from Causer’s fraudulent actions.
(Appendix 3)
● Balance Sheet
The expansion of business and loan financing led to an increase of 52.36% and 32.84% in cash
and cash equivalent and inventories respectively. There is an increase of 99.77% in other
current assets due to an increase in the account of prepayments and GST receivable (Annual
Report 2008, Page 63).
Due to the expansion of business, trade and other payables have increased by 41.86%. There
is an increase of $3.871 million in trade creditors and payroll related accounts as part of
Causer’s fraud (Annual Report 2009, Page 84).
Non-Current Liabilities increased by 9661.69%, or from $308,000 to $30,066,000 in part due to
business expansions and lack of op
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