- $72 million defrauded in New Zealand in the last 6 months.
- Increasing complexity of the industry and multiple farm ownership increases fraud risk in Agri-Business.
There are potentially significant levels of undetected fraud in New Zealand’s Agri-Business sector, according to KPMG.
The KPMG Fraud Barometer for the six months ended June 2010 released recently showed a significant increase in corporate fraud; however the survey identified no cases of fraud in the agribusiness sector.
KPMG’s Agribusiness Partner, Ian Proudfoot says,” While the lack of significant fraud (over $100,000) in the sector in the last six months is a real positive, the sector should not rest on its laurels. We believe that there are potentially significant levels of fraud that currently goes undetected in the industry.”
The increasing complexity of the industry, a higher incidence of multiple farm ownership and high levels of indebtedness and increasing foreign ownership makes improving governance standards at both the producer and processor level critical for the industry to continue to minimise the incidence of fraud.
“As we noted in the KPMG Agribusiness Agenda, a common theme from our discussions with the sector centred around the need to improve governance standards in the industry to meet the increasing complexities businesses are facing,” says Mr Proudfoot.
The trend towards multiple farm ownership increases the risk of fraud as the business owner is no longer so intimately involved in the day to day operations of each farm within the group – increasing the need to have appropriate internal controls in place to prevent and detect fraud.
Controls should be designed to reflect the circumstances of the business and the farm management arrangements in place but should include both proactive controls (for instance cash approvals, segregation of duties and delegated authorities) and detective measures (monitoring metrics and financial reports, account reconciliations and on site reviews).
“Increasing business volatility creates an environment where fraudulent practices can occur and become more difficult to detect, thus it is our belief that we are heading into a period where more volatile international prices for agricultural products will become the norm creating greater need for appropriate internal controls.”
Improving governance goes beyond internal controls and in our view includes the establishment of a governance body including independent directors with skills that complement the business owners. It also requires business owners to better utilise the capabilities within banks and professional advisers to establish and periodically update comprehensive business plans and forecasts which can then be used to report actuals against.
“The complexity of rural businesses means that there is no longer the ability to take a ‘she’ll be right’ attitude – large sums of money are involved and New Zealand is becoming a country that is increasingly experiencing large scale corporate frauds. Rural business owners need to take the steps to protect themselves from becoming the next major victims of corporate crime,” says Mr Proudfoot.
For more information, or for an interview, please contact Sneha Paul on 021 243 8997 or 09 09 3633590