Rebuild fraud could top $1.5 billion
Monday 18 Mar 2013 9:17 a.m.
Fraudsters could be ripping off the Christchurch rebuild to the tune of $1.5 billion, a forensic analyst has warned.
A KPMG survey of 140 businesses showed 38 percent didn't have any clear policies or procedures around fraud, despite the problem significantly worsening since the global financial crisis of 2008/9.
Forensic services lead partner Stephen Bell told Firstline this morning that since then, fraud in New Zealand has tripled.
"If you look at just the period from 2008 to 2012, fraud prosecutions in the courts totalled $2.2 billion, so it's a substantial amount of fraud," says Mr Bell.
"But what's interesting is comparing 2008, which is pre-GFC, and 2012 which is post-GFC, you'll see the major motivator for fraud is personal financial pressure, whereas in 2008, it was led by greed and lifestyle, second was gambling and third was corporate financial pressure.
"The motivators have completely changed."
- VIDEO: Stephen Bell on Firstline
Household debt is the biggest driver of fraud, even in the wealthier over-55 demographic.
"Normally you'd think at that level it's more corporate financial pressure or greed and lifestyle, but in fact because of lost investments coming out of the GFC and retirement income, you see more personal financial pressure driving that."
Mr Bell says companies involved with the Christchurch rebuild are "tremendously vulnerable" to this new wave of fraud.
"The companies that we surveyed said that only 50 percent of frauds are detected. If you put that into the context of what New Zealand is facing in the Canterbury rebuild – which is going to cost the country about $30 billion – even if 10 percent of that is fraud, which is consistent with international studies, then that's $1.5 billion of undetected fraud that could occur in that rebuild process."
He says the construction industry is "particularly vulnerable to corrupt practises", but agencies like the Serious Fraud Office, CERA, the Earthquake Commission and Southern Response are being proactive in fighting it.
To fight fraud, Mr Bell says companies need to have financial responsibilities spread around, so no one person is looking after too much.
"In terms of what we're seeing as being the main drivers, or the main types of fraud is asset misappropriation – so anything around the finance area where money comes and goes from the company. Appropriate controls in place, reconciliation processes, segregation of duties is necessary in order to combat fraud, plus data analysis to look at potentially fraudulent payments, are some of the techniques businesses need to use to combat fraud."