Why fraud is a growing threat for Australian local governments

Across Australia, local councils manage billions in taxpayer funds, yet many still rely on outdated systems that leave them vulnerable to financial misconduct. When fraud happens, communities suffer, services are cut, and public confidence takes a hit.

That’s because fraud isn’t just about lost money - it’s mostly about lost trust.

A 2019 report from the Western Australian Auditor General found that local councils don’t have a clear, coordinated plan to tackle fraud.

With fraud schemes becoming more sophisticated every year, the risks are only growing. Without stronger oversight and better fraud detection tools, local governments remain exposed to both internal and external threats, whether it’s employees misusing funds or cybercriminals exploiting weak systems.

This article explores why fraud remains a major issue for local governments, how technology is both a risk and a solution, and what councils can do to protect their communities, ensure data privacy, and regain public trust.

Fraud in local government: a growing concern

For many local councils, fraud isn’t always easy to spot. With limited resources, outdated systems, and siloed data, councils often lack the tools needed to properly track their financial activities, leaving them open to fraud.

In some cases, fraudulent transactions can go unnoticed for years, only coming to light through external audits or whistleblower reports.

The Western Australian Auditor General 2019 report explored fraud controls in a number of councils. It found that many hadn’t thoroughly assessed their fraud risks or put a clear plan in place to manage them.

Some key findings from the report:

• 25% of councils had never conducted a fraud risk assessment, meaning they had no clear picture of their vulnerabilities. 

• More than half had no solid fraud prevention plan.

• Many of them didn’t have formal processes in place to handle conflicts of interest, which increases the risk of internal fraud.

• 55% of councils did not train their staff on how to recognise and prevent fraud.

These insights suggest that many local councils struggle to prevent fraud because they lack clear policies, have weak oversight, and don’t have the right technology to track financial activity.

A big part of the issue is that local governments still rely on outdated technologies and manual processes. Their financial data is often scattered across different systems, making it hard to keep track of spending, check transactions, or notice unusual activity.

These blind spots make it easier for fraud to slip through, whether it’s from inside or outside the organisation.

The latest 2023-24 WA financial audit confirms that many councils struggle with basic financial controls. 

In 2022-23, 138 expenditure weaknesses were reported across 71 councils, including purchases approved after invoices were received and a lack of competitive quotes, making fraud easier to miss. 

Poor supplier record-keeping was another issue, with some councils unable to verify changes, increasing the risk of fake vendors and unauthorised payments.

Without a well-organised plan to stop fraud, councils are at risk of misused funds, dishonest procurement practices, and poor money management.

The audit found over 1,100 financial and IT control weaknesses across councils, highlighting the need for better oversight and fraud prevention.

The good news is that there are clear solutions. Stronger fraud controls, better reporting systems, and modern technology can help councils stay ahead.

The role of AI in fraud: friend or foe

Since the introduction of AI, fraud has become more advanced. Criminals use AI to create extremely convincing scams, deepfakes, and automated cyberattacks that are harder to detect.

With AI, scams that once took weeks to plan can now be automated and scaled up instantly, catching organisations off guard.

While some of these scams may seem far removed from local governments, the reality is that fraud tactics are evolving fast.

 The added challenge is that many councils still rely on outdated technologies, making it difficult to catch these threats before damage is done.

But while it’s true that AI is making fraud more sophisticated than ever before, this same technology is also helping councils prevent fraud, particularly when integrated with ERP systems.

AI-powered fraud detection and ERP systems can help by identifying suspicious activity early, tracking transactions more effectively, and ensuring better safeguards are in place.

ERP Systems: the solution to fraud prevention

As mentioned earlier, many local councils in Australia struggle to detect fraud because they rely on legacy systems, manual processes, and disconnected data. Without a clear, centralised way to track financial activity, fraud is incredibly hard to detect.

This is where Enterprise Resource Planning (ERP) systems can make a difference.

Councils need clear financial controls and real-time monitoring to prevent these issues from escalating. ERP systems provide this structure, helping councils track financial activity, enforce policies, and detect irregularities before they become bigger problems.

ERP helps local councils reduce fraud risks in these key ways:

• Centralised Data Management: ERP keeps all financial data in one place, making it easier for councils to track spending, reduce errors, and ensure records are accurate.

• Automated Controls and Compliance: By automating key processes, ERP helps councils follow policies and regulations while reducing the risk of unauthorised transactions.

• Enhanced Transparency and Reporting: It generates reports that give councils a clear view of their financial health, helping them spot issues early and make informed decisions.

• Segregation of Duties: Financial responsibilities are divided among different users, ensuring that no single person has too much control over transactions, which reduces the risk of fraud.

By streamlining financial management and enforcing safeguards, ERP systems help councils work more efficiently while keeping public funds safe.

Integrating AI with ERP: a future-ready approach

With AI, councils can take fraud prevention even further, empowering ERP systems with real-time monitoring, predictive insights, and automated compliance checks to catch suspicious activity early.

Protecting data privacy in AI- driven ERP

At the same time, bringing AI into ERP systems raises important questions about data privacy. Councils need to make sure their financial data stays secure and under their control.

As Glenn Nanda, Director at CouncilFirst, puts it: