Company fraud nearly doubles

FRAUD SOARS: A new survey says company fraud in New Zealand and across the Tasman has almost doubled since the GFC.
FRAUD SOARS: A new survey says company fraud in New Zealand and across the Tasman has almost doubled since the GFC.

The average cost of fraud in big organisations in New Zealand and Australia has doubled to almost $4 million since the global financial crisis, according to a survey by KPMG.

And that may be only the tip of the iceberg, the survey says.

The survey of about 200 groups, in both government and private sector, on both side of the Tasman showed the cost of fraud rose from an average NZ$1.9 million in 2008, to NZ$3.8m this year.

Reports earlier this year suggested that large-scale fraud cost New Zealand firms about $72m in just six months, with the total likely to be at least double that, with workers hit by the recession dipping into the company till.

The typical fraudster was a 38-year old male KPMG said. The fraudster was on average with a company for five years, and they often stole more than their annual income by using loopholes in the company's systems.

The biggest recent case in New Zealand involved ASB Bank fraudster Stephen Versalko who defrauded $17.8m.

Another recent case involved a $16.9m fraud of the Otago District Health Board, involving two fraudsters high up in the organisation. Unsurprisingly, the KPMG survey showed the most common motive for fraud was greed, though gambling or personal financial pressures were also behind fraud.

On average it took 399 days to detect a major fraud and in 61 per cent of the cases no money was recovered, KPMG said.

Organisations surveyed by KPMG said they thought only about a third of the total fraud was actually picked up. That was a concern when the results included a relatively small sample of businesses.

"The real fraud price tag for New Zealand is substantially more," KPMG's national head of forensic practice Stephen Bell said.

Financial and insurance services firms were most vulnerable to outside fraud, such as credit card fraud, irregular lending and bogus insurance claims. Company insiders were more common fraudsters for other firms.

A break-down in internal controls allowed staff to get away with money, often by simple methods, such as internet-based electronic funds transfers.

Staff may also switch their personal bank account details with those of a supplier to the company, before processing an invoice.