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Fewer companies calling cops on fraudsters – survey

Less than a quarter of New Zealand companies uncovering a major fraud call the police.

A survey of 143 New Zealand businesses says only 24% of companies call the police when a major fraud is exposed – down from 57% four years earlier and 83% in 2006.

Even when the figure involved is more than $50,000 less than half of businesses report the matter to police, according to the KPMG Fraud, Bribery and Corruption Survey 2012.

Only a third of management perpetrators are reported to police, while non-management employees have a 50-50 chance of the police being called.

When asked why they didn't involve the police, 41% of businesses said the incident was "minor" and almost a third said there was a lack of evidence.

The survey's authors – Stephen Bell, Chris Budge and Blair Bulloch – say this disinclination to report the matter to authorities, including police, is "surprising".

They say it is important to report fraud because it increases public awareness of the problem and it places on record the actions of the perpetrator, who may well be looking for a new job.

Average losses $433,721
The KPMG survey says the total amount lost was $18.26 million, up 7% from 2008, with average losses of $433,721.

The three most vulnerable industries are public administration and safety, the financial and insurance sector and manufacturing.

Of the five businesses to suffer fraud of more than $1 million, three were in the finance and insurance sector, with the others in transport and agriculture.

In 55% of cases no money was recovered, with full recovery happening 26% of the time.

More than half of internal crooks earn less than $50,000 a year.

Three-quarters of the time the fraudster acts alone.

Personal financial pressure is the biggest motivator for fraud – displacing the 2008 lead cause of greed or lifestyle.

The survey's authors say: "A number of explanations for the rise of personal financial pressure have been suggested and include the impact of the general recessionary economic environment."

On average, there were 46 frauds in each organisation which is "unacceptably high", the survey authors say.

Poor internal controls
The surveyed businesses were asked a series of questions about fraud between February 1, 2010, and January 31, 2012.

The biggest contributing factors to the fraud are poor internal controls and overriding internal controls.

However, internal controls were the predominant way frauds are detected, in 49% of cases.

The larger the company the more likely it is to be hit by fraudsters, with 62% of organisations surveyed with more than 500 employees experiencing at least one incident. For businesses with more than 1000 staff, that percentage rises to 86%.

The survey found 84% of frauds, by value, are committed by external parties and more than 70% of those incidents involved credit cards.

When it comes to "major" frauds, however, the trend reverses, with 89% of the biggest frauds committed by insiders – either non-management or management staff.

A profile of a 'typical' fraudster is:

  • A male non-management employee, acting alone and with no known history of dishonesty.
  • Aged 41 and earning $41,315 a year.
  • Employed by the company for three years and three months.
  • Motivated by personal financial pressure.
  • Stole an average of $256,454.
  • Fraud detected 4.4 months after it started.

dwilliams@nbr.co.nz

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Comments and questions
12

In High Court evidence we exposed a government appointed consultant requesting and accepting a late construction tender, and at a time when he was knowledgeable of the legitimate submitted tender prices. Neither the judge nor the minister were the least bit interested. Corruption was a possible motivation, and such unfair and unethical practices are regrettably alive and well in the construction industry.

Unfortunately, the NZ construction industry is run by the big players pulling the government strings. You say the courts supported the situation in your case, so what chance has the average Joe in fighting against fraud? Fraud can be in the industry typical guises of corruption, underhand or backroom deals or preferential treatment. All this can be well hidden from general scrutiny. Like any crime, fraud would only take whatever priority the government dictated, so why would they want to investigate themselves?

My experience was a large ministry calling a big tender and the biggest supplier in the industry refused to bid. I asked some questions as to why this was happening, and got sacked myself.

This is so common, a strong smell but a shortage of hard evidence.

Will be a welcome day when the MSM stop ignoring strong smells

Welcome to the real world of shonky dealings, where fair play is seldom evident. In your case, the biggest supplier or tenderer simply told the ministry that it did not want to tender, but would only negotiate. Tendering means (or should mean) that they have to foot it with others on a level playing field. It is better for them not to tender and show their hand, but to rely on the cost-plus negotiated contract where real profits can be gained and favours returned. Any fraud here is usually well hidden within the favours returned.

Firms have given up reporting such crimes because resolution is too far away and a successful outcome unlikely.

My experience on reporting fraud to the police is that they do not want to know. They took a year to investigate my complaint (only with pushing) and decided not to take it further.

Hah - I tried taking my evidence of fraud by staff to the police and they didnt want to hear - "a civil dispute". The reason no-one calls the police for white collar crime is that they are bloody useless.

How convenient - categorise everything as "civil" so that justice becomes the financial responsibility of the individual.

RMA and the Environment Court anyone?

I wonder if it worth asking police how many "supposed" frauds actually are real frauds ? Our volunteer organisation was pursued by a real nut-job with delutions of adequacy. He hounded police, govt ministers to order an investigation. Guess what, police wasted loads of vaulable time to reach the conclusion that there was no fraud and that the nut-job is in fact a nut-job, with a personal vendetta. You have to wonder if the police get sick of wasting valuable time and resorces this way ?

The reason business owners are reluctant to take cases to the police is that the police have no interest in them. In our case we had cut and dried fraudulent documents, forged signatures and even the computer all this was constucted on.
After 3.5 years of regular (weekly) phone calls they finally got statements from my business partner and myself but when the perpetrator refused to make a statement they said it was "too hard".
The file is still not closed nearly five years later and I still make monthly follow-up calls.
At least the SFO was honest about it when we gave it to them first.
"Yes is is within our guidelines."
"Yes, there appears no doubt that they are as guilty as hell."
"Sorry, but we are way too busy with major finance company stuff so have passed it to CIU North Shore, who will deal with it."
What a joke they turned out to be.

In the meantime, the perpetrators are out there as "registered financial advisers".

We've given up reporting finance-related fraud as the police do not have the resourses. On once case I found that eight parties had been defrauded by the same party and there where many more cases by this individual using multiple aliasis. I also noted a case where the police would not progress a $25k fraud. The next fraud this person committed was $500,000 and took down a financial instituation and was prosecuted by the SFO. No wonder that stats look better for small fraud. In my opinion, small fraud leads to bigger frauds down the road.