Fraud Hits Record Highs in Australian Courts

Michelle Remo, “Big 4″ observer
August 31, 2011 /

Insurance fraud cases and fraud against investors have reached new highs in Australian courts during the first six months of 2011, and this time with a shift in target.

This was according to the latest KPMG Forensic Fraud Barometer, showing that financial institutions continue to battle serious investment and insurance fraud committed by the top management and low level employees alike.

In Ireland, Ernst & Young reported a rather favorable outlook for financial institutions in the country as cases of corporate fraud fell by half in the last 12 months as fraud detection processes are introduced by businesses attempting to reduce financial loss. Just 16 percent of Irish businesses confirm that they have experienced incidence of serious fraud in comparison to more that 30 percent surveyed in 2010.

Fraud detection processes in UK have found its counterpart in the form of the US Securities and Exchange Commission’s implementation on August 12 of its whistleblower program in which the public could report financial fraud and apply for rewards at the federal agency. The proposed program emanates from Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act granting the SEC the authority to pay financial rewards to whistleblowers who provide new and timely information about any securities laws violation.

The latest KPMG Forensic Fraud Barometer also found that investors’ losses amounted to $32 million – unlike previous Fraud Barometers where financial institutions and commercial businesses were the biggest victims.

“The range of large insurance frauds, including a case where the insured faked his own death, shows that insurers remain a target when it comes to fraud,” said Gary Gill, National Head of KPMG Forensic.

“The survey also found an alarming rise in fraud against investors in the last six months and suggests that fraudsters are targeting investors. Investment schemes promising unrealistically high returns are always worrying and investors need to exercise more caution before making an investment decision or selecting a financial adviser; the old adage still applies – if it sounds too good to be true, it probably is,” he added.

KPMG’s latest Fraud Barometer, which monitors major frauds appearing before Australia’s criminal courts over a 6-month period, showed new patterns of fraud in which internal and external parties “collude to commit fraud.”

“Collusion to commit fraud between an employee and a supplier is harder to detect because it requires overriding the control system and is designed to avoid detection. However, if an organisation has a robust fraud risk management framework in place, including specific fraud detection measures such as a whistle blowing hotline and real-time monitoring, the alarm may be raised significantly earlier,” Gill said.

Although the total value of fraud going before Australia’s courts has fallen to $91 million from $132 million in the last six months, the average value of each fraud case remains high at $1.8 million.

“Given the current level of volatility in the market, it is likely that fraudsters will continue to steal as much as they can and organisations with poor internal controls are at serious risk. Early detection is key and businesses should work towards putting adequate controls in place to prevent and detect fraud,” said Gill.

As revealed in previous KPMG Fraud Barometers, management continued to be the main perpetrator of fraud against Australian businesses, defrauding an average of $3.37 million per case compared to the average $1.51 million defrauded by non-management personnel.

“This comes as no surprise as senior managers are the employees who have a good understanding of internal financial controls and are often able to override them,” said Gill.

Recent research by KPMG International – which analyses the profile of a fraudster – confirms the result, revealing that 29 percent of fraudsters were at management level, 35 percent at senior management level while 18 percent were at board level.

“The fraudster at management or senior level not only has the ability to override internal financial controls but also knows how to conceal this activity, which results in much larger amounts of monies stolen over a longer time,” Gill said.


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