According to business analysts and chartered accountants, Grant Thornton New Zealand, most of New Zealand’s privately owned companies are inadequately prepared when it comes protecting the financial health of their companies.
A survey carried out with small to medium-sized businesses earlier this year showed that less than a third of businesses had anti-fraud protection measures in place.
Fraud has not featured as a major issue in the past, says Peter Sherwin, Grant Thornton partner and spokesperson. Now that the ‘economic wheel has turned’ businesses are realising that there is greater potential for the perpetration of such crime.
“It may be a sign of reluctance to rock the boat in mid-sized companies that have smaller workforces, closer boss-and-staff relationships and other such issues to consider. But the effect on smaller companies of torts and malpractice can be of greater magnitude than in corporations—in some cases potentially having the ability to bring down a business.
“We are pretty trusting and pretty tolerant and I think that plays as a feeling that coworkers have... that leads to sort of blind eyes being turned.”
Mr Sherwin believes that reluctance to ‘dob’ people in is also related to the belief that the Police consider fraud to be low priority.
“I know from definite experience with clients that you virtually have to do all of the investigative work for the Police for them to actually even be interested. Reporting that you have a suspected fraud just meets with “well that’s great—just send us in the details and we will have a look at it.
“It can cost more than the fraud that was perpetrated on you,” Mr Sherwin said.
One client’s experience showed that a fraud of $2000 had entailed a cost to the company of around $15,000, for a completed file of legal work and the investigative time and work involved.
There is very little support for whistleblowers in New Zealand. Legal protection for whistleblowers is available in some countries in both the public and private sector. Support for whistleblower in private business is highest in Brazil at 85 percent, and Denmark and Sweden at 71 percent, with the lowest being in Greece at 18 percent.
Without sufficient measures in place, whistleblowers could be victimised as informants or traitors rather than a valuable early-warning system that could save lives, money and reputations, Mr Sherwin said.
A KPMG survey carried out with businesses in both Australia and New Zealand, showed that over 50 percent of New Zealand businesses had been the victim of a fraud over a two year period.
Since then, outcomes have been pretty consistent, says KPMG forensics analyst, Mark Leishman.
Most business fraud is underpinned by greed, the need to support lifestyles and gambling addictions.
Larger organisations were more likely to be victims of fraud but the impact and financial cost on smaller organisations was high. In an organisation with over 1000 employees, there was an 85 percent likelihood.
“Internal fraud generally tends to be around purchasing, procurement and payroll,” Mr Leishman said.
Misappropriation of cash, theft of stock and false invoicing are the most commonly encountered frauds which indicated inadequate control over what are ancient crimes.
Companies need to be proactive, Mr Leishman said. “A whistleblower hotline is very valuable.”
Businesses are also advised to carry out data analysis to uncover indicators of fraud and to have a quick response plan in place in order to keep financial losses to a minimum.
No one was available for comment from the Serious Fraud Office or the Ministry of Justice.
Some highlights from the KPMG 2006 Fraud survey carried out in Australia and New Zealand.
Forty seven per cent of all respondents experienced at least one fraud during the survey period, which was up marginally from 45 percent reported in 2004.
Total value of fraud reported was $154.9 million with an average value for each organisation of $714,000.
Seventy five percent of respondents have a system for anonymous reporting of fraud.
In 42 percent of major frauds none of the money or goods stolen was recovered.
Fourteen percent of employees involved in fraudulent conduct had a history of dishonesty with previous employers, up from seven percent in 2004.
Seventeen percent of major frauds involved the use or misuse of computers, computer networks or on-line banking facilities.
Sixty one percent of respondents believed identity fraud was a major problem for business.
Respondents reported 546 cases of identity fraud with a total value of over $2.8 million.
