By LIBBY MIDDLEBROOK
New Zealand business is losing millions of dollars each year because of management failure to handle the risk of fraud, says corporate services company Ernst & Young.
Its survey Fraud - the Unmanaged Risk found more than 55 per cent of local businesses suffered some form of fraud during the past year, but just over one third of firms felt they had done enough to protect their organisations.
The survey, which collected evidence from 739 organisations in 15 countries, also found more than 60 per cent of international businesses had sustained fraud during the past year.
Ernst & Young partner Ben Harper, the group's head of business risk consulting, said the results showed that local companies had not got any better at managing fraud since surveys in 1996 and 1998.
"From my experience there are few companies that would have the structures in place to prevent fraud, and that's got to be a huge concern to the business community and the public," he said.
"I just don't think businesses are thinking about it, they're more concerned about their business and the internal controls that manage and prevent fraud."
It is difficult to estimate how much swindlers cost New Zealand firms each year as few companies report fraud, often due to embarrassment, but the Securities Commission says fraud costs securities markets at least $100 million a year, and some estimates go as high as $1.2 billion.
While directors are increasingly being held accountable for failures in risk management systems, Mr Harper said few companies were doing enough to prevent the problem through such systems. The problem was exacerbated by new technologies which exposed companies to wrongful electronic fund transfers and hackers.
He said the best way to avoid employees and outsiders siphoning money was to complete a full vulnerability review along with developing a clear internal fraud policy for staff.
Pre-employment screening, access controls, staff monitoring and contingency plans also served as effective deterrents.
"You used to be able to go home at the end of the day and lock your office door, now you've got to think about computer security issues and hackers ... We believe companies continue to bury their heads in the sand and ignore the fraud warning signs."
Securities Commission chief executive John Farrell said the rising number of fraudulent investment promotions being offered in New Zealand was also a concern, and investors needed to be more vigilant about viewing proper prospectus documents.
Firms fail to stamp out risk from fraud
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