Large fraud tops $72m in 6 months

23:37, Jul 18 2010
FRAUD
BIG BILLS: Large-scale fraud hit $72 million in the first half of the year, but that is "only the tip of the iceberg".

Large-scale fraud hit $72 million in the first half of the year, but that is "only the tip of the iceberg".

Cash-strapped Kiwis bitten by recession have resorted to fraud and the full extent of it will not be known for years.

New Zealanders have swindled about $240.6m in large frauds since January 2008 and the average size of large frauds is now more than $2m, KPMG's latest large-scale fraud survey shows.

KPMG forensics partner Stephen Bell said the extremely high level of fraud was not surprising given the backdrop of the recession.

"We haven't seen the end of it. In the past 12 months there's been about $150m in large recorded fraud. Our expectation for 2010 is that it will be a record year. Typically the second half of the year is larger in terms of reported frauds and their dollar value."

KPMG monitors cases coming before the courts that exceed $100,000 and the individuals involved must be charged or sentenced for their case to be counted.

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The report revealed just the tip of the fraud iceberg, Mr Bell said.

Business New Zealand chief executive Phil O'Reilly said the actual level of fraud for the period was likely to be much higher than $72m as the most common kind of fraud was small-scale.

"You can probably double that number – that's a guess but the [value of small-scale fraud] will be a big number.

"One of the issues is that companies either don't find out about it or if they do, they often keep it a bit quiet because of the corporate reputational harm that's done by admitting you've got a problem."

Any business handling cash or dealing with complex financial transactions would be at risk of fraud "at some time", but it was important to remember the vast majority of employees were honest, he said.

The $72m defrauded in the six months to June is dramatically higher than the $22m defrauded in the first half of 2009, and just $4m shy of the $76m defrauded in the six months to December 2009.

Mr Bell said the high fraud levels for the past two six-monthly periods reflected several multimillion-dollar cases, some of which stretched back years. One case in the six months to June had involved $47m.

Businesses had been doing a better job of identifying fraud because they were watching every dollar, but job cuts resulting from the downturn had created more opportunity for deceit as there were fewer staff to perform checks, he said.

Firms should ensure they had controls in place, including having more than one person approve expenditures, and should conduct credit checks on suppliers.

Managers remained the biggest threat, as they were more likely to commit fraud than lower level employees and left a deeper gouge in the coffers because of their access to information, authorisation capabilities and power to over-ride internal controls.

CASE BY CASE

High-profile frauds before the courts in the first half of the year included:

Wellington finance and administration manager Janice Johansson was jailed for more than four years in June after she plundered more than $2 million from her employer, by making hundreds of unauthorised transactions.

Bank conman Stephen Versalko, 51, was sent to jail for six years after stealing $17.8m from 30 ASB Bank clients – he spent $3.35m of company money on two prostitutes.

Wellington-based IHC national fundraising manager Lynn Fiebig created 74 invoices from three bogus companies, making $590,000 from her fraudulent activities. She was jailed for three years in March.

A Bay of Plenty company director jailed for four years for tax evasion of more than $700,000, after he hired 39 sub-contractors as "invoice writers", to supply him with false documents to falsify gst returns.

A financial controller for an Auckland firm stole $2.7m from her employer over six years to spend as a VIP high-roller at SkyCity Casino. Her accountant partner admitted laundering stolen money.

The Dominion Post