Fraud barometer hits record $100m as big cases reach court

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The value of large frauds brought before the courts rose to $100 million in the second half of last year, with investors the victims for two-thirds of that value, the latest KPMG fraud barometer shows.

The latest six-month period has the highest value for a half-year in the three years covered by the barometer. The previous highest was $76 million in the second half of 2009. To be included in the barometer a fraud must exceed $100,000.

In the first six months of 2010, the total value was $72 million, giving a total of $172 million for the year.

KPMG New Zealand head of forensics Stephen Bell yesterday said the large jump in frauds in the second half of last year was mainly because of a number of large cases involving multi-million dollar frauds, including cases prosecuted by the Serious Fraud Office.

For a fourth consecutive period, the KPMG barometer found that those in management tended to be more likely to commit fraud than lower level employees, and when they did commit fraud generally misappropriated far higher amounts. That was due to their access to information, authorisation capabilities and ability to understand and override internal controls.

The largest frauds by management related to cases where investors were the victims through investment scams or the theft of funds under management, KPMG said. The value of these cases was $65.3 million in the six months to December 2010, out of $70 million total fraud by management.

The top five types of frauds based on number for the second half of 2010 were accounting fraud with seven cases, five of fraudulent loans, three of tax fraud, three of investor money being stolen, and two investment scams.

Five of the cases were worth more than $3 million, with four of those cases involving investors or financial institutions as the ultimate victims, the report said.

Some of the cases related to frauds that happened during preceding years.

The report noted that many organisations had increased their focus on fraud risk management through measures such as improved corporate governance, data analysis and the use of technology and automated procedures. But for some organisations, fraudsters continued to find a way to relieve them of their money, the report said.

Investment scams or suspect financial advisers continued to fleece unsophisticated investors.

From July 1, a new financial advisers regulatory regime will come fully into force, requiring all people giving financial advice to be registered with the Securities Commission. When offering a personalised service or dealing in complex products such as shares and bonds, an adviser must be authorised, with authorisation requiring minimum standards of competency, experience, disclosure and integrity.

The report said: "Only time will tell what effect these new regulations will have on future fraud cases of this sort."

- NZPA