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