‘Super-fraud’ cases drive record annual levels in reporting
7 September 2011
‘Super-fraud’ cases continue to drive record annual levels in fraud reporting: KPMG research
According to the latest KPMG Fraud Barometer, while the number and value of large fraud cases through the New Zealand courts in the first half of 2011 is down from the last survey period, the incidence of ‘super-frauds’ (defined as cases where the value is greater than $3m) continues to drive the aggregate value of frauds to record annual levels.
The June 2011 KPMG Fraud Barometer shows:
• Value of large fraud cases, defined as over $100,000, totalled $79.8m (down from $100m in the last period)
• There were 29 cases in total (down from 30 in the last period)
• Of the 29 cases, three were ‘super-frauds’, these totalling $62.9m
One of the super-fraud cases, a result of a ‘kiting’ scheme* valued at $39.6m, accounts for practically half of the value of total large fraud cases in the survey period.
“These figures show that there has been no let up in large frauds continuing to occur and brought before the New Zealand courts. Fraud is a constant and serious threat to all sectors of the New Zealand economy, including commercial business, governments, non-profit organisations, and individuals,” says Stephen Bell, Head of Forensics at KPMG New Zealand.
Comparisons with previous year
Compared with the same survey period last year (covering the six months to June 2010), the latest KPMG Fraud Barometer shows that the number of large fraud cases going before the New Zealand courts is consistent with a small increase to 29 cases (from 26) in the latest survey period ending June 2011. The aggregate value of large frauds for the first half of these respective years increased from $72.2m to $79.8m.
‘Super fraud’ cases
Since KPMG’s fraud analysis began in January 2008 the second half of the year has had a greater number, and value, of prosecutions than the first.
The spike in the prosecution of ‘super-frauds’, which seemingly began in the second half of 2009, continues to drive the aggregate value of frauds to record annual levels. The Serious Fraud Office (SFO) is behind all of the ‘super-fraud’ prosecutions in the most recent period for which there were three with a total value of $62.9m. During the last six month period there were 10 large frauds prosecuted by the SFO with an aggregate value (according to court records) of $69.0m.
“Recent court activity indicates that 2011 will reach record levels with over $200m in charges being laid by the SFO in the High Courts in the month of July alone. We can conservatively expect the aggregate value of charges in these ‘super-fraud’ cases prosecuted by the SFO to exceed $300m by the end of 2011. This more than doubles the super-fraud cases in 2010 valued at $143.9m,” says Mr Bell.
The survey found that the most common victim was the Government (10 cases) and the most prominent victims, by value, were financial institutions at $51.1m. Both commercial businesses and Government had a lower average fraud per incident during the latest six month survey ($300,000 and $400,000 respectively).
“While there is no definitive reason why commercial businesses and the Government are suffering smaller average frauds, it is possible that greater resources are being deployed towards the prevention and detection. Evidence of this was a case where the relevant government department detected the fraud by the use of data analysis, one of the most powerful fraud detection techniques,” says Mr Bell.
As in previous surveys, the perpetrator is more likely to be internal to the organisation with employees and management representing 14 of the 29 cases.
Fraud by management represented the highest number of cases (10 cases with $21.5m in value). The frauds committed by management were shared among commercial businesses, financial institutions, customers, investors and others.
Other prominent perpetrators were taxpayers (seven cases with $2.8m in value) via benefit fraud, tax fraud and tax evasion against Government.
Males accounted for 62 per cent of the cases and 94 per cent in value.
Types of fraud
The most common type of fraud in the survey period was accounting fraud (in nine cases), in these cases internal staff were generally the perpetrator.
“All of the frauds recorded against commercial businesses were accounting frauds. This reinforces the need for all organisations, whatever their size, to consider the strength of their internal and financial controls, particularly in relation to the receipt of revenues and payment of payroll and accounts payable,” says Mr Bell.
About KPMG Fraud Barometer
Conducted twice a year, 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.
Download the full report here KPMG Fraud Barometer – June 2011
* Kiting is dishonestly borrowing non-existent funds by taking advantage of the time lag between withdrawing the non-existent funds from a financial institution and the transaction being dishonoured. To avoid detection, the perpetrator needs to continually process ever increasing withdrawals to cover the amounts being ‘borrowed’.