Recession drives more managers to commit fraud: PwC survey
42 percent of New Zealand organisations reported fraud
Sharp rise in economic crime by middle management
Reduction in staff morale a notable impact of fraud
Business fraud committed by middle and senior management across New Zealand has increased by almost 20 percent over the
past year, according to the latest PricewaterhouseCoopers Global Economic Crime Survey.
The survey of 3000 respondents in 54 countries revealed that, in the last 12 months, a total of 42 percent of New
Zealand organisations were the victims of fraud. The global average was 30 percent.
Asset misappropriation (theft) was the most common form of fraud, cited by 86 percent of New Zealand respondents. This
was followed by financial statement fraud, cited by 36 percent, and intellectual property theft at 17 percent. In 72
percent of all cases the fraud was committed by someone inside the organisation.
PricewaterhouseCoopers Forensic Services Partner Eric Lucas says that fraud is a widespread and serious problem for New
Zealand businesses. “On average New Zealand organisations lost almost $500,000 in the last 12 months as a result of
fraud. One organisation alone reported that their losses were in excess of $7 million over the last 12 months,” he says.
“The high level of fraud committed by internal staff was a figure we expected, and reflects our own experiences in fraud
investigations. What was alarming was the shift in the profile of the internal fraudster. In our 2007 fraud survey, 75
percent of fraud was carried out by junior staff. In 2009, that figure had dropped by almost 20 percent - but the fraud
is now increasingly being committed by middle and senior management. This shift is a cause for concern, as senior staff
have the ability to override internal controls and can potentially cause greater financial loss to organisations.”
New Zealand was ranked eighth highest for rate of fraud out of the 54 countries surveyed, behind the Ukraine (45 percent
reported fraud) and the UK (43 percent). Russia was the country with the highest incidence of reported fraud with a 71
percent. Australia was ranked ninth, on 40 percent, and the country with least reported fraud was Japan, with 10
percent.
Mr Lucas: “This figure was above our expectations – the global average for reported rates of fraud was 30 percent. While
New Zealand has reported a fairly high incidence of fraud, one possible explanation is that we have good detection
systems. We believe that in New Zealand there is a high level of honesty in answering these surveys, so this is likely
to represent a true rate of fraud for this country,” he says.
The financial crisis had created an environment with greater incentive or pressure for fraud. Most common reasons for
committing fraud were that it was increasingly difficult for staff to achieve their performance targets, and people were
afraid of losing their jobs.
A third of all economic crimes were detected by formal (such as whistle-blower hotlines) and informal tip-offs, and a
further third by accidental means. “Our experience is that many organisations in New Zealand are reluctant to use a
whistle-blower hotline, or have a poorly functioning hotline tip-off system. These results show the importance of having
these sorts of mechanisms in place to alert management to fraud and other issues,” Mr Lucas says.
For those affected by fraud, the biggest impact was in employee morale. “Often these cases involve a breach of trust or
similar feeling of betrayal. Organisation management tends to focus on external impacts such as brand reputation – but
managers risk losing sight of the very real impact that fraud has on their staff internally, which can in turn impact on
production and staff turnover which also have significant business costs.”
Mr Lucas: “These results highlight the need for organisations to ramp up their fraud detection and risk management
systems. With increased incentives for fraud through financial hardship in the wake of the financial crisis, combined
with reduced numbers of staff focusing on fraud detection, and increasing numbers of middle management fraudsters, the
conditions exist for companies to lose a lot of money over the coming year.”
ends