Level and value of Fraud on the increase: KPMG

28 March 2011

MEDIA RELEASE

Level and value of Fraud on the increase: KPMG

• $100 million defrauded in New Zealand in the last 6 months
• Number of high value cases increase – 5 cases over $ 3 million.
• Managers remain greatest risk to business
• Men accounted for 73% of the cases and 82% in value of fraud

There has been a significant increase in the value of fraud, according to the KPMG Fraud Barometer report released today.

The total amount defrauded was $ 100 million in the six months to December 2010, the first time the KPMG Fraud Barometer has recorded $100 million in a single period.

This compares with $ 72 million in the first half of 2010 making a total of $ 172 million being defrauded for the 2010 year. In 2009 there were approximately $ 100 million of large frauds in New Zealand.

KPMG New Zealand Head of Forensics Stephen Bell says, “The large jump in frauds in the second half of 2010 is mainly because of a number of large cases involving multimillion dollar frauds, including a number of cases that have been prosecuted by the Serious Fraud Office. These figures confirm that fraud is a constant and serious threat to all sectors of the New Zealand economy, including business, governments, non-profit organisations, and individuals.”

The KPMG Fraud Barometer observes that based on the continued increase in the value of frauds being prosecuted, things are not getting better.

“Businesses need to continue to be diligent in thier detection and prevention of fraud. Companies need to invest in understanding the fraud ‘hot spots’ in their business and putting in place specific measures that address those ‘hot spots’ by deterring and detecting fraud when it happens,” says Mr Bell.

For a fourth consecutive period, the KPMG barometer found that those in management tend to be more likely to commit fraud than lower level employees, and when they do commit fraud generally misappropriate far higher amounts due to their access to information, authorisation capabilities and ability to understand and override internal controls.

The largest frauds by management related to those cases where the investors were the victims – i.e., investment scams or the theft of funds under management. The value of these cases has increased noteably in the six-months to December 2010 when compared to our previous barometer results.Currently $65.3m (out of $70m total fraud by management) as opposed to $6.3m (out of $11.7m total fraud by management).

The top five types of frauds based on number for the second half of 2010 were – Accounting Fraud (7), Fraudulant loans (5), Tax fraud (3), Investor money stolen (3) and Investment scam (2).

Consistent with previous findings, frauds involving the manipulation of accounting systems continue to be the biggest single fraud threat to organisations.

“The prevelance of accounting frauds in the Barometer highlights the fact that it is vital for organisations to conduct fraud risk assessments and strenghten their internal controls,” says Mr Bell.

Top five types of fraud by value of fraud were – Investor money stolen ($ 65 million) Fraudulent loans ($ 18 million), Tax Fraud ($ 3 million), Accounting Fraud ($ 3.2 million), Identity Fraud ($ 3 million).

Conducted on a semi-annual basis, the KPMG Fraud Barometer is the first of its kind in New Zealand. It monitors the level of reported frauds coming before the criminal courts in New Zealand, and provides commentary surrounding trends, the types of perpetrators, the victims, and the types of frauds occurring. Fraudulent activity must exceed $100,000, and the individuals must at least have been charged (or sentenced), for the case to be included in the barometer.

Ends

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