Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Gate open to fraud in industrial markets


KPMG New Zealand 28 June 2005

Competitive pressures leaving gate open to fraud in industrial markets

Large manufacturing sector companies are increasingly exposed to the risk of fraud according to KPMG Forensic director, Mark Leishman

“The highly competitive nature of doing business in industrial markets means that many companies are trying to reduce staffing levels while at the same time maintaining or increasing outputs. Reduced staffing mean that the organisation can no longer ensure adequate internal controls are in place to manage the risk of fraud.

“In addition, an increasing trend towards linking remuneration to financial performance in this tough environment is driving financial statement fraud at the divisional level,” said Mr Leishman.

In one case of financial statement fraud within industrial markets, an executive director who had been in the position for only a short time, manipulated the company’s financial statements in response to ‘pressure from shareholders to achieve results’. The fraud involved creation of false revenue valued at more than $10 million.

“Financial pressure is a particularly strong motivator for fraud in industrial markets. It was the second highest motivation associated with fraud in the sector nominated as the primary motivation in 23 percent of incidents reported. This compares to Australian business in general where financial pressure was cited as the main motivation in only three percent of cases.

“With the increase in performance-based remuneration, we believe there will be a commensurate increase in related fraud,” said Mr Leishman.

Companies in industrial markets are prone to false invoicing by external parties as well as the organisation’s own staff. Invoices received by these organisations are sometimes paid without being adequately verified because of the cost pressures and the pace of business within the sector. Sometimes these invoices are totally fictitious or the pricing may have been loaded by a genuine supplier.

“One large fraud we encountered in the industry involved a case of false invoicing by two male management employees in their late thirties who colluded to steal $800,000 from their employer.

“These types of fraud can be relatively easy to perpetrate in large organisations that are effectively operating on minimal staffing. In highly competitive industries, one person is often responsible for multiple tasks and there is no-one to check their work,” said Mr Leishman.

The most common type of fraud in industrial markets, according to the 2004 KPMG Fraud Survey, was theft of inventory and plant by employees. On average, fraud in the sector is uncovered by internal processes 15 months after commencement but only after warning signs, which were ignored for a period of time, are finally recognised and acted upon.

Some of the warning signs that industrial markets respondents indicated were not acted upon include:

- Taking telephone calls while on leave;
- Failing to take annual leave;
- Implausible reasons given for stocktake variances; and
- High wastage rates in production.

ENDS

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Voluntary Administration: Renaissance Brewing Up For Sale

Renaissance Brewing, the first local company to raise capital through equity crowdfunding, is up for sale after cash flow woes and product management issues led to the appointment of voluntary administrators. More>>

Elsewhere:

Approval: Northern Corridor Decision Released

The approval gives the green light to construction of the last link of Auckland’s Western Ring Route, providing an alternative route from South Auckland to the North Shore. More>>

ALSO:

Media Mega Merger: Full Steam Ahead For Appeal

New Zealand's two largest news publishers have confirmed they are committed to pursuing their appeal against the Commerce Commission's rejection of the proposal to merge their operations. More>>

Crown Accounts: $4.1 Billion Surplus

The New Zealand Government has achieved its third fiscal surplus in a row with the Crown accounts for the year ended 30 June 2017 showing an OBEGAL surplus of $4.1 billion, $2.2 billion stronger than last year, Finance Minister Steven Joyce says. More>>

ALSO:

Mycoplasma Bovis: One New Property Tests Positive

The newly identified property... was already under a Restricted Place notice under the Biosecurity Act. More>>

Accounting Scandal: Suspension Of Fuji Xerox From All-Of-Government Contract

General Manager of New Zealand Government Procurement John Ivil says, “FXNZ has been formally suspended from the Print Technology and Associated Services (PTAS) contract and terminated from the Office Supplies contract.” More>>