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Fraud, fuelled by greed and lifestyle

Monday 16 October 2006

Fraud, fuelled by greed and lifestyle, continues to strike at 50% of New Zealand businesses

More than 50 per cent of New Zealand businesses continue to be the victim of fraud, according to the latest findings of the 2006 KPMG Fraud Survey.

The combined Australian and New Zealand survey identified that 47 per cent of the 465 organisations surveyed had experienced at least one fraud during the survey period with the average value of fraud reaching $714,000 per organisation. Fifty three per cent of New Zealand organisations had experienced at least one fraud with an average loss of $479,000.

Sixty three respondents reported single frauds with a value greater than $200,000 and there were eight cases where the value exceeded $4 million. In 42 per cent of major frauds none of the money or goods stolen was recovered.
KPMG forensic director, Mark Leishman, said the number one motive for fraud was greed and to finance lifestyle. Second was personal financial pressures.

"Gambling, which represented 22 per cent of the motive for the overall survey, was significantly lower in New Zealand, at eight per cent, but still showed an increase from the 2004 survey.

“Despite being in the headlines, fraud is still hitting the bottom lines of New Zealand companies," he said.

“While we are seeing improvements in the detection of fraud, in 2006 the average detection time was 362 days compared with 456 in 2004.

"There are still some basic things that organisations could be doing to cut down on fraud. False invoicing and theft of cash and inventory remain the most common frauds for organisations, suggesting that controls over these ‘age old’ fraud risks are poor.

“In addition, 14 per cent of employees involved in fraudulent conduct had a history of dishonesty with previous employers, double the number identified in the 2004 KPMG Fraud survey. A background check may have uncovered this," Mr Leishman said.

"The increase in the manipulation of computer data is indicative of the increased use of IT systems generally, which confirms our experience that controls over access and changes to computer data are often poor."
Kickbacks and bribery no.1 fraud within Asian operations
Sixty one per cent of respondents who had operations in Asia suffered at least one incident of fraud during the survey period.

According to Mr Leishman, there is a strong indication from the 2006 survey results that corruption was a major problem in Asia.

“Kickbacks and bribery accounted for 34 per cent of reported fraud within Asian operations; within Australia and New Zealand kickbacks and bribery represented less than five per cent of the reported frauds. Businesses with operations in Asia need to understand the risks of doing business in the region and take the appropriate steps to mitigate those risks,” said Mr Leishman.

Survey highlights

- Forty seven per cent of all respondents experienced at least one fraud during the survey period, which was up marginally from 45 per cent reported in 2004.
- Total value of fraud reported was $154.9 million with an average value for each organisation of $714,000.
- Greed and lifestyle considerations, together with gambling, were the most common motivators of fraud.
- Seventy five per cent of respondents have a system for anonymous reporting of fraud.

- In 42 per cent of major frauds none of the money or goods stolen was recovered.
- Fourteen per cent of employees involved in fraudulent conduct had a history of dishonesty with previous employers, up from seven per cent in 2004.
- Seventeen per cent of major frauds involved the use or misuse of computers, computer networks or on-line banking facilities.
- Sixty one per cent of respondents believed identity fraud was a major problem for business.
- Respondents reported 546 cases of identity fraud with a total value of over $2.8 million.


Profile of the typical fraudster (for the survey period)

The typical fraudster in the survey period exhibited the following characteristics:

- The offender was a non-management employee of the victim organisation with no known history of dishonesty.
- A male aged 38 years, acting alone.
- Employed by the organisation for a period of five years and had held his current position for three years at the time of detection.
- Motivated by greed, misappropriating funds to an average value of $220,000.
- Detected by the organisation's internal controls 12 months after the commencement of the fraud, leading to the organisation recovering 36 per cent of the proceeds of the fraud.

This profile is largely consistent with KPMG's 2004 survey.

About the KPMG Fraud Survey

The findings of the Fraud Survey 2006 were derived from 465 responses received to a survey questionnaire sent in February 2006 to 2146 of Australia’s and New Zealand’s largest organisations across public and private sectors. The questionnaire, consisting of 48 questions, sought information about fraud incidents within the respondents’ business operations during the period April 2004 to January 2006.

The KPMG Fraud Survey has been running since 1993 and is updated biennially.

ENDS

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