‘Super-fraud’ to reach record levels

The value of ‘super-fraud’ charges is expected to exceed $300 million by the end of 2011. This more than doubles 2010 value of $143.9 million, according to the latest KPMG Fraud Barometer.

Super-fraud cases are defined as those where the value is more than $3 million. KPMG New Zealand head of forensics Stephen Bell says in July alone over $200 million in super-fraud charges were laid by the SFO in the High Courts.

One of the super-fraud cases resulted from a ‘kiting’ scheme; dishonest borrowing of non-existent funds by taking advantage of a time lag. Valued at $39.6m, accounts for nearly half of the value of total large fraud cases in the survey period (June 2011 and the preceeding six months).

According to KPMG research, there was a spike in the prosecution of ‘super-frauds’, apparently beginning in the second half of 2009. This continues to drive the aggregate value of frauds to record annual levels.  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.

The most common victims were the Government (accounting for 10 cases) but by value the most prominent victims were financial institutions, at $51.1m. But both commercial businesses and Government had a lower average fraud per incident during the latest six month survey ($300,000 and $400,000 respectively).

Mr Bell says 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.”

In one government-related fraud case, the relevant government department detected the fraud by the use of data analysis, which Mr Bell described as “one of the most powerful fraud detection techniques.”

Accounting fraud was the most common type during the KPMG survey period. It accounted for nine cases. Internal staff were generally the perpetrators.

Mr Bell says all 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.”

Compared with the same survey period last year, the aggregate value of large frauds for increased from $72.2m to $79.8m.