Survey Reveals Prevalence of Economic Crime in NZ

Tuesday 16 October 2007

Despite heightened efforts to control economic crime, it continues to pose a significant and growing threat to companies around the world, and New Zealand is no exception. According to the Global Economic Crime Survey 2007 released today by PricewaterhouseCoopers, economic crime is a fact of life for business in New Zealand.

The Survey 2007 was conducted on behalf of PricewaterhouseCoopers and interviewed 5,428 leading organisations globally, 894 in the Asia-Pacific region and 78 in New Zealand. Results were compiled by independent experts and reported to PwC to protect the anonymity of those surveyed.

Prevalence and cost

The number of organisations having experienced an economic crime incident (67% of respondents) is significantly higher in New Zealand than in the Asia-Pacific region and globally.
For those New Zealand respondents that suffered from an economic crime, the total loss was more than NZ$69.5 million, with an average loss of NZ$1m. Alarmingly, 20% of New Zealand organisations that reported an incident of economic crime suffered significant losses of between NZ$1.35m and NZ$13.5m.
“The results show no organisation is immune to economic crime – regardless of size, organisational structure or industry,” said John Fisk, a partner in the Investigations and Forensic Services practice at PricewaterhouseCoopers.

Worryingly, 48% of the money lost by NZ organisations via economic crime has never been recovered. In addition, many appear to have poor insurance policies to cover losses and costs from economic crime. 68% of respondents say they have these, but those who have suffered losses have only recovered an average of 6% of the lost funds from insurance.

Types of fraud

According to the Survey results for 2007, asset misappropriation remains the most likely economic crime to be suffered by NZ organisations, with 59% of victim companies suffering the theft of assets such as money or equipment. However there was a demonstrable gap between this reality and what was perceived as being the most prevalent threat – just 32% regarded this form of economic crime as the most likely to occur at their organisation.

The threat of intellectual property infringement is also present in New Zealand with 18% of respondents regarding this as the most likely threat to their businesses, and 16% reporting being a victim of this crime with an average loss of more than NZ$1m.





Fraud offender profile

In NZ, 66% of economic crime involves a person inside the business or organisation. A ‘typical’ perpetrator in New Zealand:
• is male (70%)
• has been in his position and with the organisation for less than 2 years
• is below middle management level
• has a high school education or less
• is aged between 31 and 40.

The Survey indicates the most common reason for economic crime being committed is, unsurprisingly, financial gain.

John Fisk said his experience in NZ was that although this profile did apply to many perpetrators, it was certainly not applicable in every case. “Over the years we have also seen some very substantial frauds committed by trusted long-term female employees in office administrator, accounts and payroll functions,” he said. “Similarly, larger frauds were much more likely to be committed by perpetrators in more senior roles, and were likely to cause more damage in addition to pure financial loss.”

Company response to fraud

In NZ, just 36% of organisations did not report the incident of economic crime to the appropriate law enforcement agency, indicating an inconsistent approach. Even more surprising, only 70% of incidents were reported to the organisation’s board, audit committee, or executive management.

When asked: “What action did you take against the main perpetrator?”, a disappointing 16% of New Zealand organisations said they did nothing, and only 53% said they moved to dismiss the perpetrator.

Mr Fisk said this indicates many organisations could significantly improve the way that they deal with issues of economic crime, and many needed to set the tone with a policy driven by senior employees. “In particular, organisations need to have an enforced policy on how incidents will be dealt with such as reporting these matters to executives and the board, and to the police.”

The Survey shows internal controls alone are not enough to fight economic crime. An ethical corporate culture plays an equally important role in deterring fraud, evidenced by the finding that 50% of economic crime incidents in New Zealand were detected through some form of tip-off, or accidentally uncovered.

Money laundering

8% of respondents say they have suffered from an incident of money laundering in the last two years, twice as high as the global results and more than double the result for the Asia-Pacific region. One-quarter of respondents believe they will be subjected to money laundering within the next two years.

Updated anti-money laundering (‘AML’) legislation is due to be enacted in New Zealand before the end of 2008. Mr Fisk said it was of concern that 63% of NZ organisations were not prepared for the impact of new AML legislative amendments. One-third were not even aware the changes were imminent.

“These changes will fundamentally change the scope of the existing rules to cover many more organisations and will place a heavy compliance and potential cost burden on reporting entities,” he said. “Organisations will need a good understanding of what is money laundering, how money launderers operate, their product and customer risk profiles, and introduce processes to ensure that their risk assessments are kept current.”

NOTES FOR EDITORS

2. Further information
For further information, such as graph images or the international report Global Economic Crime Survey 2007, please contact Paul Ford or visit www.pwc.com/crimesurvey.

3. About the Survey
The PricewaterhouseCoopers Global Economic Crime Survey 2007 was conducted on behalf of PricewaterhouseCoopers and Martin-Luther University, Halle-Wittenberg by TNS-Emnid in Germany. The survey interviewed 5,428 leading organisations globally, 894 in the Asia-Pacific region and 78 in New Zealand. Results were compiled by independent experts and reported to PwC to protect the anonymity of those surveyed.

4. About PricewaterhouseCoopers Investigations & Forensic Services
The IFS practice operates across over 50 countries and can deploy experienced and knowledgeable teams to manage and mitigate the threat of corporate crimes and achieve the best possible outcomes. Using in-depth forensic accounting and corporate investigation skills allows clients to continue their business, recover lost funds, and halt further economic losses. The expertise to assist organisations investigate and manage the many risks associated with fraud, abuse and dishonesty comes from the experience of the international staff and their backgrounds in forensic accountancy, forensic IT and private sector investigations as well as regulatory work and law enforcement.

5. About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory to build public trust and enhance value for its clients and their stakeholders. More than 146,000 people in 150 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

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