RETAILER VULNERABILITY TO LOTTERY FRAUD

ABSTRACT

A fraud at an Australian national retail chain over a two-year period exposed deficiencies in first, second, and third line of defence controls (Institute of Internal Auditors). Internal Audit’s role was to data-mine millions of transactions to assure the retailer of the full extent of the fraud and whether other stores had suffered similar losses in the preceding 3 years. In addition to the quantitative findings, the resulting qualitative improvements to internal control helped to offset the AUD$100,000 loss. So the fraud was turned into a beneficial process improvement assignment at less than the cost of engaging management consultants to achieve a similar result. In this way an undesirable fraud shock became an opportunity to terminate under-performing staff, improve internal controls, and increase the retailer's profitability.

Notes

1. Albeit in our calculations the ratio between the higher odds of winning were cancelled out by the higher ticket cost and provided no benefit to the player.

2. https://www.skybrary.aero/index.php/James_Reason_HF_Model#:~:text=The%20Swiss%20Cheese%20model%20of,gaps%20in%2Dbetween%20each%20slice

Additional information

Funding

The write up of this research paper was funded by Internal Audit consulting firm Kelly & Yang.

Notes on contributors

Christopher C Kelly

Christopher C Kelly is a fellow of the Institute of Chartered Accountants, Institute of Internal Auditors; and an accredited member of the Australian Mathematical Society. After 11 years as a tax consultant and global auditor with Ernst & Young, he joined industry as chief audit executive for several British and Australian companies. While in industry, he developed new audit, data mining and risk management methods resulting in numerous fraud discoveries, process efficiencies, and improvements to risk management with material dollar savings for clients. This career-long build-up of experience and intellectual property allowed him to start Kelly & Yang which today serves corporate and government clients globally.