Fraudsters work overtime to skim employers

Employees and managers were among the perpetrators of fraud, skimming almost $80 million off small, medium and large companies in New Zealand during the six-month period covering January to June 2011.

A majority of them (62%) were men.

According to the ‘KPMG Fraud Barometer’ published on September 8, the total number of cases dropped from 30 (June 2010) to 29 this year.

The number of large frauds ($100,000 or higher) increased from 26 to 29, with their aggregate value moving up from $72.2 million to $79.8 million.

‘Super Frauds,’ involving $3 million or more accounted for $62.9 million.

The half-yearly ‘KPMG Fraud Barometer,’ published by KPMG New Zealand is a reliable source of information relating to fraud in New Zealand.

The Kite Flyers

KPMG Head of Forensics Stephen Bell said the so-called ‘Kiting Scheme,’ valued at $39.6 million, formed a part of the Super-Fraud cases.

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 continually processes ever-increasing withdrawals to cover wrongdoing.

“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,” Mr Bell said.

The Barometer, established in January 2008, has also displayed a pattern over the years – the number and value of incidents of fraud is always higher in the second half of the year, compared to the first.

Mr Bell said that the rise in the number of prosecution cases, which began in the June-December 2009 period, continues to drive the aggregate value of frauds to record annual levels.

“The Serious Fraud Office (SFO) prosecutes all ‘super-fraud’ prosecutions.

The Office brought 10 large fraud cases with an aggregate value of $ 69 million before the New Zealand courts between January and June this year.

“Recent court activity indicates that 2011 will reach record levels with over $200 million in charges brought by SFO before the High Courts in July alone. We can conservatively expect the aggregate value of charges in these ‘super-fraud’ cases to exceed $300 million by the end of 2011. This more than doubles the super-fraud cases in 2010 valued at $143.9 million,” Mr Bell said.

Government Victimised

According to the KPMG Survey, the Government was “the most popular victim,” accounting for ten cases during the first six months of the current year.

However, financial institutions were “the most prominent victims,’ losing $51.1 million during the same period. Both sectors had a lower average fraud per incident of respectively $300,000 and $400,000.

Mr Bell said while there was no definitive reason why commercial businesses and the Government were suffering smaller average frauds, it was possible that greater resources were deployed for 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,” Mr Bell said.

The Culprits

Employees, including those in management positions, claimed almost half the ‘share’ of frauds, accounting for 14 of the 29 cases.

Fraud by management represented the highest number of cases (10 cases with $21.5 million in value). The perpetrators shared their spoils with commercial businesses, financial institutions, customers, investors and others.

There were seven cases of fraud relating to benefit, tax fraud and tax evasion. These were valued at $2.8 million.

Mr Bell said that all frauds related to accounting and hence advised companies to have better checks and balances.

“All organisations, whatever their size, should strengthen their internal and financial controls, particularly in relation to the receipt of revenues and payment of payroll and accounts payable,” he said.

KPMG New Zealand is a Sponsor of the Indian Newslink Indian Business Awards 2011 with a unique package. The Firm would host 12 Business Workshop Sessions for winners and a finalist in six categories. These include Best Large Business, Business Excellence in Retail Trade, Business Excellence in Property Investment, Business Excellence in Agriculture & Horticulture, Business Excellence in Export to India and Best Young Entrepreneur of the Year.

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