A total of 546 large frauds were brought before the courts between 2008 and 2011, costing the Australian economy an aggregate value of over $1 billion, finds the latest KPMG Fraud Barometer.
“The billion dollar figure is particularly concerning as we believe the actual cost of fraud is significantly greater than what has been recorded. Many incidences of fraud go undetected or unreported and we estimate that less than 20 percent of frauds actually go before the courts,” says Gary Gill, National Head of KPMG Forensic.
KPMG’s Fraud Barometer found that commercial businesses and financial institutions ranked equal first in fraud losses sustained over the four-year period, although financial institutions experienced a higher average loss per fraud case. Almost half of the number of frauds against financial institutions took place in New South Wales.
The report further shows that while Queensland experienced a greater number of large frauds than other states, when measured on a per capita basis New South Wales was the hardest hit overall, suffering a total loss of $407 million at an average value of $2.7 million per large fraud.
“It comes as no surprise that New South Wales, being frequently referred to as Australia’s financial capital, would be the country’s key target for financial institution frauds. Fraudsters follow the money trail and these findings merely reinforce that,” says Mr Gill.
Other significant findings in this Fraud Barometer include:
- 80 percent of frauds against commercial businesses are ‘inside jobs’ committed by rank-and-file employees or managers, averaging $1.8 million per fraud. The largest recorded fraud in the Barometer ($45 million) and the largest against an Australian listed company ($19 million) were both insider frauds;
- frauds committed by management cost Australian businesses $400 million over four years, averaging over $2.78 million per fraud, almost triple the average for non-managers. Managers were the culprits in nine of the eleven ‘superfrauds’ (frauds greater than $10 million);
- accounting fraud, which invariably involves insiders, weak controls and a lack of detection processes, remains the most common type of fraud;
- cases related to bribery and corruption are starting to come before the courts as Australia plays catch-up with many other developed economies in toughening its anti-bribery and corruption regime.
Fraud in Australia is on the increase, reaching an 18-month high of $131 million in the six months to December 2011, up from $90 million the previous 6 months. Mr Gill attributes the increase to the general slowing of the Australian economy.
“We have previously found a positive correlation between levels of fraud and periods of financial instability. We are seeing the first of frauds committed against organisations with gaps in internal controls in this cash-constrained environment,” says Mr Gill.
Commercial businesses were the largest group victim of fraud in the last 6 months, accounting for nearly a third of the recorded frauds and suffering close to $60 million in fraud losses. This was double the value sustained by any other victim group.
While managers and other employees were the main instigators of fraud, management fraud cost businesses on the average of $4 million per case compared to $2 million per case of employee fraud.
“Fraud continues to cost Australian organisations and in many cases it’s an internal problem, but fraud should never be seen as an unavoidable cost of doing business. Undertaking robust risk assessments, using data analytics to identify potential fraudulent activity, providing staff with fraud awareness training and putting in place an effective plan for responding to fraud will go a long way in minimising or avoiding losses,” concludes Mr Gill.