Catch fraud early to lessen the loss

18 February 2010

Tougher economic conditions saw a jump in the number of frauds reported according to the Australian results of PricewaterhouseCoopers 2009 Global Economic Crime Survey.

Released today, the results show that during the 12 months survey period, four out of ten Australian organisations reported at least one incident of fraud as compared to the global average of around a quarter (24%). Just over a third (37%) of the frauds reported by Australian organisations over the same period cost in excess of AUD$1 million, more than double the global average (17%).

PricewaterhouseCoopers partner Malcolm Shackell said, "The number of frauds reported is not an accurate reflection of the amount of crime committed, it's a measure of how effectively organisations detect and prevent fraud."

You need to "catch fraud early," he said. "Higher awareness, lower tolerance and quicker detection lessens the impact of fraud on an organisation's bottom line and reputation."

The PwC Global Economic Crime Survey was undertaken in conjunction with the INSEAD Business School during late 2009 and is the largest, most comprehensive survey of its kind. Globally, more than 3000 organisations in 54 countries participated in the survey that also draws on a library of data that dates back 10 years to the first global survey and 8 years to the first Australian survey.

The focus of the 2009 Global Economic Crime Survey was to understand what if any impact the downturn had. Respondents were asked about fraud in their business over a 12 month period that broadly corresponded to the volatile economic and financial times.

Fraud in volatile times

Half of the Australian organisations surveyed (52%) said during the 12 month survey period they experienced an increased number of incidents as compared to the prior 12 months.

Mr Shackell said, "The survey results mirror our experience - volatile times increase fraud by raising incentives".

"During the downturn, employees were forced to tighten their wallets and with pressure to meet corporate targets and goals, and concerns about job security, there was increased incentive to commit fraud."

Globally, there was a rise in middle management crime, more than double that of the previous survey. Australia was no exception with middle management crime accounting for half of the frauds committed.

Mr Shackell says, "Closer to home, another trend we saw was the detection of frauds that had gone on for a long time and had been committed by trusted employees, resulting in a larger financial and broader, whole of business impact."

Crime Stoppers CEO, Peter Price said, " Fraud is sometimes dismissed as a less serious crime, as compared to those which involve physical harm and narcotics for example, but fraud can have a huge economic impact on all of us."

Tip of the iceberg?

Mr Shackell believes that the increased number of frauds seen over the past 12-18 months is just the tip of the iceberg.

"During the downturn cost cutting measures and closer scrutiny of the books, particularly cost items, 'lowered the waterline' and allowed organisations to see fraudulent activity that in good times would have continued to go undetected," Mr Shackell said.

"While the water level may slowly be on the rise, organisations would be prudent to heed the lessons learnt."

He adds, "Our experience and the survey results show a correlation between risk assessments and the number of frauds reported".

"Organisations that carried out regular fraud assessments reported more frauds. Conversely organisations that reported less frauds rarely if ever undertook fraud assessments. Fewer frauds detected don't mean fewer frauds committed," he said.

Fraud in the future

The results of the survey show that fraud continues to be a challenge for Australian organisations.

Asset misappropriation remained the number one crime experienced by Australian organisations during the 12 month survey period.

Mr Shackell said, "Cost cutting during the downturn, in many cases meant weaker controls paving the way for an increase in certain types of fraud including identity theft, accounts payable and payroll expense fraud."

"We also saw a number of emerging crimes in the past 12-18 months that put companies with distressed assets, considering deals in capital assets or dealing with unknown or offshore entities at an increased risk.

"These organisations need to be wary and undertake thorough due diligence," he said.

Fighting fraud

There is a perception gap between actual crime and perceived risks. Organisations often underestimate their future fraud risks. Three in five (60%) of organisations believe they are unlikely to be a target of fraud in the next 12 months.

"But, no organisation is immune. To fight fraud you have to understand the risks you face and have strong controls in place," he said.

The greatest weapon to combat fraud is a comprehensive fraud control plan that includes vendor and employee due diligence, whistleblower lines and fraud focused data analytics.

Mr Price said, "All employees have a vested interest in the well being of the company that provides for them. When companies lose millions of dollars, jobs are at risk but employees can take action to prevent this by using internal and external whistleblower lines available to them."

Should a fraud occur Mr Shackell says, "Organisations need to have an incident management plan to minimise the impact."

Such a plan would cover internal and external communications, investigation techniques and avenues of recovery such as insurance.

About Crime Stoppers

Crime Stoppers provides an anonymous alternative for people who suspect a fraud or any other crime. They can report their concerns over the phone on 1800 333 000 or online at www.crimestoppers.com.au

About the survey

PwC's 5th Global Economic Crime Survey was conducted between July and November 2009. There were 3,037 respondents from 54 countries who took part in an online questionnaire. Participants were asked to respond to the questions in regards to their company and the country in which they are located.

The Forensics Services groups of the PricewaterhouseCoopers global network of firms play a lead role in addressing the lifecycle of fraud and other avoidable losses, providing reactive investigative services and proactive remedial and compliance services to clients in the private and public sectors.

About INSEAD

As one of the world's leading and largest graduate business schools, INSEAD brings together people, cultures and ideas from around the world to change lives and transform organisations. This worldly perspective and cultural diversity are reflected in all aspects of our research and teaching. With two campuses in Asia (Singapore) and Europe (France), two centres in Israel and Abu Dhabi, and an office in New York, INSEAD extends the reach of its business education and research across three continents.

About PwC

PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for our clients and their stakeholders. More than 163,000 people in 151 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.