Financial institutions need to improve their systems for detecting internal fraud. A review of employee fraud in Australian financial institutions over the past decade found that a large proportion of frauds went undetected for years.Forensic accountants Warfield and Associates reviewed cases that occurred between January 2000 and September this year, and which resulted in a criminal conviction - a total of 120 cases involving the loss of A$217.3 million.The review, published yesterday, found that in 92 per cent of cases the fraudster acted alone and that a gambling addiction was involved in more than 50 per cent of cases.The most common forms of employee fraud were theft from customer accounts and the creation of false loans. One fraudster conducted 141 unauthorised transactions from the accounts of 21 customers over a 10-month period.The largest amount stolen by an employee was $45.3 million, and five cases involved at least $10 million.Sixty-nine of the 120 cases involved the big banks.Warfield and Associates partner Brett Warfield said the issue that should worry financial institutions was that one in six frauds took more than five years to discover. The longest period a fraud went undetected was 16 years and involved the theft of $3 million, and another went undetected for 10 years.The report said: "The time taken to discover frauds should be of real concern to those responsible for governance in their financial institutions."Management may want to believe that, in the event of fraud in their organisation, the internal controls will identify the issue fairly quickly. The evidence from the research contradicts that assertion.""It is clear that educating staff about the warning signs of fraud, and fraud risk mitigation strategies, have been absent in many of the reported cases."Another matter of concern was that at least five perpetrators had prior convictions and one had three prior convictions for gambling related fraud. "No detailed background check was undertaken on him," the report said.