The Federal Court of Appeal has dismissed an appeal by Pioneer Mortgage Services Pty Ltd and its director Stephen Stefanowicz, finding that the Federal Court was correct to rule that they were liable to mortgage funder Columbus Capital for losses arising from the fraudulent actions of a Pioneer employee.Although the original Federal Court hearings before Justice Jago involved numerous other claims, this appeal only concerned the ruling that Pioneer was liable for the long-running fraud by its employee, Tupeia Dando, who, for six years, redirected money from customers' accounts to one controlled by her husband.In its judgment handed down yesterday, the Court of Appeal confirmed that Pioneer - and Stefanowicz, as director of Pioneer and guarantor of Pioneer's obligations -  were liable to Columbus Capital Pty Ltd for Dando's fraud, which she committed using the Origin CAP BUREAU system and always keeping the redraws below A$10,000 to avoid detection.None of those redraws - almost 100 in total between 2006 and 2013 - were checked by Pioneer until 2014 when Dando was on leave and the fraud was discovered. The court described the Origin CAP BUREAU software as "a special means of electronic communication available only for staff authorised by Pioneer," which ANZ had provided Pioneer with access to, in part to allow Pioneer to make redraws. One weakness of the system, "about which Pioneer was aware," was that it was possible for an authorised person to go online and to direct payments to a third party account.It was common ground that Dando used her position as a manager, and her authority to use Pioneer's computer system, to contact ANZ, and then Columbus, to request funds be redrawn from three accounts without the consent of those customers. One crucial failure by Pioneer was that not once were cross-checks for redraws below $10,000 made against the daily electronic transaction report, produced by the ANZ (and later Columbus) system on a daily basis. Nor were clients' authorisations required for amounts below $10,000.However, redraws had a specific code, and the format in which the report could be provided was electronic and could be searched easily. The primary judge found that if Pioneer had done so routinely, it would have discovered Ms Dando's fraud almost immediately in 2006. Instead, Pioneer's employees relied on paper files - and Dando created none.This was one factor that led the Court of Appeal to agree that Pioneer had not met its contractual requirement to Columbus that, as mortgage manager, it "must take such steps and maintain such procedures as would be taken and maintained by a reasonably prudent mortgagee in connection with each participating loan."This breach of the contract between Pioneer and Columbus (a management agreement which dated back to 1994 and had been transferred several times) was one of three grounds on which the Federal Court had found Pioneer liable.It also found Pioneer liable through the principle of vicarious liability, and because representations made by Dando to ANZ and Columbus that customers had requested redraws constituted misleading or