28 March 2011
| The KPMG fraud barometer published today suggests that fraud in New Zealand may be increasing. In the six months to December 2010, the incidence and value of fraud increased. This may be a temporary trend as a result of a number of large prosecutions. The value of large fraud cases totalled $100 million (up from $72 million in the first half of 2010). There were 30 cases in total (up from 36 in the first six months of 2010). Five cases relating to investors and financial institutions involved more than $3million each. Interestingly KPMG also published the fraud barometer for Australia today . That shows fraud levels have dropped over the past year, possibly because businesses have stepped up their detection systems in the wake of the financial crisis. In the second half of last year fraud cases totalling $116 million went before the courts. That compares to $132 million in the first half of last year.In Australia, most cases involved accounting fraud, with the perpetrators tending to be employees who knew how to get past internal controls and falsify records.
www.abc.net.au/news/stories/2011/03/28/3175297.htm?section=business |
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Integrity Talking Points 
Our experience, as a New Zealand pre employment background screening company, is that (employee) fraud remains steady regardless of the economic climate.
More fraud is reported during a recession because companies at these times show more interest in identifying where savings might be made, and in so doing, uncover employee embezzlement. And quite often the fraud started long before the economic downtown anyway.
I will add that much more employee fraud occurs than these surveys, or criminal conviction statistics, can possibly disclose. It is our experience that some New Zealand companies which have suffered from employee fraud choose not to involve the Police because they do not want the adverse publicity associated with a court case. The company is more concerned about the risk to its reputation and decides instead to quietly dismiss the employee.
We receive a steady stream of new clients wanting to implement an employee background screening programme only after they have been defrauded.
Craig Gubbins
Personal Verification Ltd
Thanks Craig.
Surveys like the KPMG barometer perhaps lack statistical reliability. However they do provide a year on year comparison….. and in many ways reflect the pattern of fraud highlighted by your reports on http://www.verify.co.nz/news-cvfraudnz.php. Is it your experience that government agencies are failing to report suspected fraud as directed by the Auditor General? See http://www.oag.govt.nz/central-govt/2003-04/part8.htm#duties
8.14
In the event of suspected fraud, we expect the Board or Chief Executive to report the matter to the appropriate law enforcement agency, which will decide whether proceedings should be instituted for a criminal offence. We also expect public entities to immediately inform their Appointed Auditor of any suspected fraud.
8.15
It is for the law enforcement agencies, not public entity managers, to decide whether or not a person should be prosecuted….”
Or of circumstances where Audit NZ has not referred fraud as directed by OAG? see
http://oag.govt.nz/2011/auditing-standards/docs/10-ag-isa-240-fraud.pdf/view?searchterm=fraud
B
Beith
In my experience, which includes 25 years as a State Servant in the SIS, Government departments and tax-payer funded agencies (Health Boards, etc) are far more determined to refer employee fraud to the Police, than are private companies. Private Companies have the disincentive of publicity and it may be that public entities have an incentive in the Auditor General.
Having said that, at least two private companies have expressed frustration to me because when they went to the Police with a complaint of employee theft, they felt “fobbed off “. One Wellington business felt they were completely dis-interested in investigating a complaint concerning the theft of $100,000.
I suspect the Police place a higher priority on prosecuting employee fraud in Government agencies because they rely on other departments for regular assistance with their other criminal investigations (e.g. WINZ, Immigration, even your own department – Corrections, all provide daily assistance to the Police).
It seems the first real concern about the nature and extent of fraud in the public sector emerged with the highly-publicised 1997 fraud conviction of the Government’s very own watch-dog – the Auditor-General. I recall during his trial, Jeff Chapman’s Secretary (or it might have been his PA when he was head of ACC) gave evidence that she felt very uncomfortable with some of the expense claims she was processing for him, such as $3,000 bills for limousine hire in New York, and undocumented cash withdrawals on his Government credit card, but that she felt it was not her place to refer her concerns to someone in authority.
Now we have the Protected Disclosures Act which provides legal protection for someone in this woman’s position to raise concerns, but I do not know how widely the Act is being used or relied upon to report fraud. The Act applies to both the public and private sector but I would be surprised if many private sector employees availed themselves of it. However, every Government department I had dealings with (which was all of them when I managed the Government Security Vetting programme) had a written policy in place alerting its staff to the Act and how to use it.
Fraud will always exist, but I suspect that while private companies may have the greater commitment to uncovering it (because it affects their viability), Government departments have a greater commitment to (and the greater possibility of) prosecuting it.
In both sectors, the policies in place can reduce the risk of fraud. Recently, the SCC’s decision to require all departmental heads to publicly release their half-yearly expenses (following the lead of politicians) enhances the integrity of Government agencies. Strong ethical leadership, being accountable and holding everyone else to the same standard, is the most effective means Government CEO’s have of reducing fraud.
Craig Gubbins
Personal Verification Ltd