Financial crime is costing New Zealand businesses millions of dollars every year – and a growing number are turning to independent whistleblowers to help stamp it out.
Stephen Drain, a partner in PwC New Zealand's forensic services team, says more than half of all Kiwi organisations say they have been hit with some form of economic crime in the past two years.
And it is coming at a cost. Around a quarter say they have lost between $US100,000 and $US1m in that time, with 6 per cent reporting losses of more than $US1m.
Drain says these figures, taken from PwC's 2018 Global Economic Crime and Fraud Survey, shows while New Zealand business operates "relatively honestly", it doesn't mean the country is free of economic crime.
Globally 52 per cent of financial crime is committed by people within an organisation. In New Zealand fraud committed by consumers is, at 42 per cent, the leading reported crime, but cybercrime is rising more quickly and Drain believes it will become the most disruptive to companies over the next two years.
In a time of global volatility, Drain says business leaders need to anticipate risks before they occur and to respond quickly once they do; then they'll have the opportunity to emerge stronger.
He says financial crime is one such risk and it is important companies and organisations develop a plan or framework to combat the problem: "They need to be looking at how to instigate measures to prevent and detect economic crime and ways to implement the appropriate response – in other words do something about it."
Drain says Kiwi firms are increasingly turning to whistleblower services as a way of dealing with the issue. "Whistleblower services represent a trusted place employees can go when they find something wrong, acting as a go-between with management."
He says the concept only works if individuals reporting suspected crime believe they will be protected should they speak out. They can be caught in a vulnerable position and face pressure to remain silent, especially if they are employees of the same company.
Drain says PwC operates whistleblower services for a number of companies in New Zealand. It provides a 0800 number and confidential email for people to contact and is strict about protecting the identity of those supplying information.
Financial crime is escalating throughout the world and is one of the biggest issues facing global business, the UN last year estimating up to $US2 trillion is being money laundered annually.
"In New Zealand boards and management are being increasingly challenged to know how to respond to financial crime," says Drain. "Planning with a focus on prevention and detection can go a long way to mitigating the risks and in the process create a transparent and safe environment for employees, clients and stakeholders.
"It need not just be a cost. If properly addressed, a strong fraud control framework can create a competitive advantage – and maintain reputations."
Drain says PwC lists a number of steps in its advice to companies, number one of which is to have a plan. "But it is also important to have a CEO who as well as being a champion of key issues like innovation and technology, is someone who sends a clear message that fraud is unacceptable."
It is also important for senior management to be seen to working to the same set of rules and standards because staff will notice anything amiss.
"This can boil down to simple things like using the company credit card for coffees, expense frauds or creating false invoices," he says. "But even if a trusting and honest culture exists, things can happen.
"The 2018 survey revealed three main reasons why financial crime is committed: One is because the opportunity to do so exists, a second is when employees come under pressure to perform and finally there is rationalisation – the 'I work hard so I deserve it' reasoning."
Drain says one of the keys to preventing financial crime is to ensure companies employ the right people. "I always ask if they are vetting applicants properly because many times I've seen fraud committed by people who have been shifted on from other places.
"Because financial crime impacts trust and confidence, it is vital companies respond quickly," he says. "Those who do so, and are open about it, recover more quickly."
PwC assists in discovering the extent of fraud, identifying the perpetrators and recovering losses, then formulating a communication strategy to rebuild trust and confidence.
Drain says because cybercrime is a result of increasingly sophisticated technology, it is able to be committed from anywhere in the world and much more anonymously.
It is important to "freeze" electronic evidence of crime quickly because although it can be found in multiple places, it can also be easily deleted. Drain says while artificial intelligence (AI) is increasingly being used to detect and prevent crime, like all technology it changes rapidly and he advises smaller companies especially to seek expert advice before committing to a system.