Record fraud of $100 million by management

Fraud has skyrocketed to record levels in New Zealand with $100 million defrauded last year, revealing that managers remain the greatest risk to business.

This compares with $22 million in the first half of 2009 making a total of $100 million being defrauded for the 2009 year.

In 2008 there were approximately $ 70 million of large frauds in New Zealand.

KPMG forensics partner Mark Leishman says, the large jump in frauds in the second half of 2009 is mainly because of a number of large cases involving multi-million dollar frauds.

"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."

For a second consecutive period, the KPMG barometer found that those in management tend to be more likely to commit fraud than lower level employees.

KPMG says when those in management do commit fraud they also generally steal far higher amounts due to their access to information, authorisation capabilities and ability to understand and override internal controls.

For instance, when an employee in senior management defrauds a company, the average fraud value exceeds $ 1 million, compared to an average of only $500,000 for lower level employees.

"The results of the Fraud Barometer provide evidence that there are significant levels of fraud prompted by, or uncovered during, the economic crisis. What is being disclosed now is primarliy long term pre-existing frauds. We are still yet to see the full impact of the current economic situation," Leishman says.

Frauds against Government, financial institutions and commercial businesses make up two thirds of the large frauds in this time period.

The top five types of frauds based on number for the second half of 2009 were - Fraudulent loans (6), tax evasion (6), accounting fraud (5), deception (3), investor money stolen (2).

But while New Zealand continues to experience a high number of tax related frauds, perpetrators tend not to succeed in defrauding as much money per fraud incident as other types of fraud.

For instance, the total value of tax evasion for the period was $ 6 million, significantly less than the $34 million of fraudulant loans recorded for the same period.

Leishman says the most common and effective type of fraud were faced by financial institutions in the form of fraudulant loan applications.

"While the internal threat came from staff, the most common external threat came from customers who submitted fraudulant loan applications. We've noticed a considerable increase in the number of loan frauds during 2009, suggesting that a great proportion of bank customers are feeling the pressure of the economic downturn," he says.

The top five types of fraud by value of fraud were - fraudulent loans ($34 million), investor money stolen ($ 20 million), tax evasion ($6 million), accounting fraud ($ 5 million) and creditor money stolen ($ 4 million).

Other regular frauds included contract fraud, grant scams, deception, and frauds against vulnerable people in the community such as the elderly.

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