28 March 2011

Decaf Fraud Report

Now that the NSW state election is over the mass media have embraced the latest KPMG Australian Fraud Barometer report [PDF], which claims that fraud cases totalling $116 million went before the courts in the second half of last year, down from $132 million in the first half of 2010. The report covers "large fraud cases", ie some 67 cases. It speculates that the drop is attributable to businesses stepping up their "detection systems in the wake of the financial crisis" - "times are tougher and so they're a bit more vigilant".

KPMG Forensic representative Gary Gill commented that most cases involved accounting fraud, with perpetrators tending to be employees who knew how to get past internal controls and falsify records. "Despite the dip in this period, the $1.7m average per case is nothing to sneeze at, requiring urgent attention from every business".

KPMG claimed that -
financial institutions continue to be the largest victims of fraud, having lost almost $40m to fraudsters in the period. Fraudsters also hit government organisations, investors and commercial businesses hard.

Fraudulent loans, investment scams and theft of investors’ money accounted for about half of the frauds in this period.

These losses reinforce the need for financial institutions to thoroughly vet loan applications and know their customer. For investors, the old adage still applies - if it sounds too good to be true, it probably is.

Accounting fraud continues to be the most prevalent type of fraud committed, with a third of the 67 cases falling into this category, amounting to $11 million.
The report suggested that -
• the majority of frauds both by number and value (70 percent) continue to be perpetrated on the eastern seaboard (New South Wales, Queensland and Victoria).

• almost 50% of large frauds coming before the courts occurred in New South Wales, totalling $60m.

• Western Australia’s booming economy seems to be driving an increased level of fraud, with $25m of large fraud cases, where the majority of victims were investors.

• the average size of a large fraud was $1.7 million.

• although there were no high profile 'supercases', there was a steady stream of large frauds between $1 million and $10 million, many of them bearing the hallmarks of the types of internal frauds that often go undetected for long periods.

• an increasing number of cases of deception, where people are conned into handing over money, often through investment scams that are fleecing unsophisticated investors.

• as in previous periods, the value of frauds in the Financial Services sector for the period exceeded other sectors.

• government organisations suffered a range of frauds – mostly by external parties.
The actual report comprises a mere eight pages, of which one is the cover and another KPMG contact details. The analysis is nothing to knock your socks off: it's a simple tabulation (slicing & dicing by gender, location, type of fraud) of charges or convictions - the methodology is unclear - for offences over $100,000. All in all, what might be expected from a diligent but not especially gifted first year law undergrad with time to look at AustLII and newspaper coverage of who has been wheeled into the dock.

For more meaningful analysis readers might turn to research by the Australian Institute of Criminology and other research bodies.