Expect to see more fraud emerging, similar to the multimillion-dollar one uncovered at the Otago District Health Board, as New Zealand and the world head deeper into troubled times, a leading New Zealand fraud examiner says.
Deloitte national leader of forensic practice Barry Jordan, who is also Wellington president of the Association of Certified Fraud Examiners (New Zealand), said history showed fraud tended to "float to the surface" during difficult economic times because "businesses and organisations began to take a closer look at what they were doing and why".
"We all know New Zealand and the world is going to go through a fairly volatile time in the next few years and volatile years are when you pick up fraud.
"The 1987 crash saw a spike in fraud investigation work."
Michael Swann and Kerry Harford were last week convicted of defrauding the Otago District Health Board of $16.9 million.
The fraud, which involved the two men invoicing the board for computer-related services they never provided between 2000 and 2006, was the biggest he could recall from the past few years, Mr Jordan said.
While comparatively small by international standards, it was certainly in the top 10 frauds uncovered in New Zealand.
Enough fraud occurred throughout the country to keep 30 investigators at the Serious Fraud Office (SFO) "pretty busy", Mr Jordan said.
The SFO investigates fraud involving sums over $500,000.
No good data was available in New Zealand about how widespread fraud was, but the latest research undertaken by the fraud examiners' association suggested about 7% of a company or organisation's revenue was lost to fraud, on average.
Internal and external audits and control systems did detect some fraud, but the vast majority he saw was uncovered by good luck and tip-offs, Mr Jordan said.
People might see something left lying on the photocopier or the fraud could trip up in activities taken to try to hide it.
Tip-offs were more likely to come if managers had an open-door policy and employees felt they could talk to their executives and they would be listened to.
Once fraud was suspected, it was never straightforward finding it, Mr Jordan said.
Nine times out of 10, a fraud would only reveal about one-third of what happened.
If a fraud said it had been going on for six months, an investigator would go back two years; if they said only one supplier was involved, then all suppliers should be examined.
Once fraud was proved, the amount that could be recovered depended on what the money had been spent.
If it had been used for gambling or to pay for a drug addiction, the chances of getting anything back were "very low".
If it had been paying for a lifestyle, some assets could usually be recovered, but realistically, only 20% to 40% was likely to be recouped.
A culture of zero tolerance for fraud, having specific anti-fraud controls in place and not employing "bad apples" in the first place were the three key areas to help to prevent fraud, Mr Jordan said.
"You are never going to be able to say an organisation is not going to have fraud, because if you did that, the controls would be so tight nothing would happen on a day-to-day basis.
"A determined individual [is] like a burglar - if they want to get in your house, they will.
But you need to make it hard enough to deter them from trying."
Top 10 warning signs of a fertile fraud environment
•Financial information takes longer to be produced, becomes more complex and more difficult to understand.
•Excessive levels of debtor's write-offs.
•An unusually strong alliance with a supplier in a highly competitive area.
•Numerous credits or contra journals being passed to "correct" errors in the finance system.
•Using suspense accounts throughout the month that get zeroed just before the auditors come in.
•Executives who demand use of a corporate credit card that is paid by the company each month.
•Employees working outside their normal areas of expertise.
•Executives with a dictatorial management style.
•Staff who have password protected files saved on the "My Documents" section of their local hard drive.
•Organisations undergoing regular periods of internal reorganisation, particularly in the finance area.
Source: Deloitte
