Employee Fraud and Compensation Orders by Courts – Do the Ends Justify the Means?

‘Dishonestly obtaining financial advantage by deception, or causing a financial disadvantage by deception’ is a common offence committed by employees of companies. Employee fraud has become so prevalent that companies are now setting up specialist departments in house to prevent or reduce its occurrence. This is largely due to the significant sums lost by companies from employee fraud each year. The cost of setting up such a department, arguably, saves these companies more money than what they end up losing without it in the long run.

The 2014 Report To The Nation on Occupational Fraud and Abuse, by the Association of Certified Fraud Examiners Inc reports that the typical organisation loses 5% of its annual revenue per year due to employee fraud. It also reports that the fraudulent activities studied lasted an average of 18 months before being detected. That’s a long time!

The maximum punishment in the Local Court for an offence of dishonestly obtain financial advantage under s192E Crimes Act is up to 2 years imprisonment.

There have been many cases where offenders get away with stealing over $600,000 worth of money from their employer, receive about a year in prison, but left with a compensation order to repay only a small percentage of that $600,000. This leaves a profit for the offender, often, of hundreds of thousands of dollars in the end. Not a bad profit in return for doing a bit of time in prison, is it? The reason for this is usually due to whether those cases are heard either in the Local or District Court for sentencing, a decision usually decided by the Director of Public Prosecutions.

Can you be ordered to repay the money you stole from your employer?

Found guilty of stealing money over $100,000 from your employer? The Local Court, in it’s criminal jurisdiction, can only make a maximum compensation order of up to $100,000 (see section 29(1)(a) Local Court Act 2007 (NSW) and section 98(b) Victims Rights and Support Act 2013 (NSW)). This means the Local Court doesn’t have the power to order a compensation order greater than $100,000 against the offender, in favour of the victim employer.

The law recognises that a corporation or company is an aggrieved person under section 96 of the Victims Rights and Support Act 2013 (NSW) which means the victim can include a company that you worked for, rather than person.

If a local court, in its criminal jurisdiction, makes an order of more than $100,000, it is acting ‘ultra vires’, which means, it is acting outside of it’s power. The Court is not allowed to do this, and this can be a good reason for the offender to appeal.

What is the significance of all this? Well, interestingly, you can never be ordered to repay money more than $100,000 if sentenced in the Local Court for a charge of obtaining financial advantage by deception under s 192E Crimes Act (NSW). This is something that is overlooked by the DPP and Police when a matter is chosen to either stay in the Local Court or moved to the District Court for sentence. Off course, the District Court has the power to make compensation orders in excess of $100,000.

What if the court makes an order for more than 0,000?

The offender can appeal to a higher court on an error of law (Crimes (appeal and Review) Act 2001 (NSW)). If the local court, acting in its criminal jurisdiction, made an order of compensation greater than $100,000, you can appeal to the District Court. The District Court, when hearing the appeal, is limited to making orders that a local court can (section 71 Crimes (Appeal and Review) Act 2001 (NSW)). This means, the District Court hearing an appeal, is also limited to only making a maximum of a $100,000 compensation order.

In fact, sometimes, the District Court, on appeal, will ‘quash’ the local court order of the compensation amount. On other occasions it may either reduce it, or even elect not to make any compensation order. It may choose not to make any compensation order if the Court is convinced that the stolen money is not likely to ever be repaid by the offender.

Can an Employer Sue for the Stolen Money After the Criminal Case is over, Through the Civil Court Process?

Yes, but..

An offender sentenced for stealing money from an employer can only be enforced to pay the money back in accordance with a compensation order, or other court order, if such an order to repay the stolen money is made before the offender is declared bankrupt. In other words, if the local court in its criminal jurisdiction makes a compensation order before he or she is declared bankrupt, the compensation order will still survive the bankruptcy (section 82(3) Bankruptcy Act 1966 (Cmth)).

Where the Criminal Local Court doesn’t make a compensation order, or if it makes such an order of only up to $100,000 in circumstances the total money stolen was more than this, the employer can then pursue a claim, through civil proceedings, for the balance of the money that was stolen. This can only be pursued before the offender is declared bankrupt.

But, there is a loophole.

For example, if you have stolen $600,000 from your employer, and you then become declared as bankrupt before any court order to repay it, your debt does not survive bankruptcy. This means that you cannot be required to pay it back, and it cannot be enforced in any court of law (section 82(1) Bankruptcy Act 1966 (Cmlth)). This can only apply, if you are declared Bankrupt before a court makes an order for you to repay the money that the Local Court didn’t make, or couldn’t make because of its limitation.

What does this mean?

In effect, this means that offenders have a small window of opportunity to be declared as bankrupt before an order is made for repayment of stolen money owing to their employer.

For example, if you are given a prison sentence of 1 year, and released from custody after that year, you will be given a clean slate with no debts to repay. This will only apply if you were declared bankrupt before an order has been made against you to repay money stolen.

About Jimmy Singh

Mr. Jimmy Singh is the Principal Lawyer at Criminal Defence Lawyers Australia - Leading Criminal Lawyers in Sydney, Delivering Exceptional Results in all Australian Criminal Courts.

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