Findings of a recent Fraud market research survey indicates middle level managers are the most common corporate fraudsters. WHK Otago audit director Phil Sinclair told the Otago Daily Times recently that fraud remained a major source of financial and reputational loss to New Zealand businesses, yet many organisations continued to believe that it had not happened and would not happen to them.

Employers are being warned to be vigilant about fraud during the credit crisis as more people are finding it harder to make ends meet legitimately.

It was expected that an increase in the detection of existing fraud would occur as organisations examined their financial records more closely in order to understand declining results.

For example, nine Wellington bus drivers were sacked for allegedly stealing thousands of dollars in fares. At least $20,000 between May and June, The Dominion Post reported. More than $500,000 had gone missing over three years, until a new debit card system exposed discrepancies.

Mr Sinclair said the Wellington bus driver incident was a good example of how a fraud from ongoing activities could be detected if a system changed.

Fraud survey statistics for businesses to consider:

• Nearly 50% of NZ respondents experienced fraud
• Average loss $495,000 per organisation
• Most common reason for fraud to occur was poor internal detection systems (31%)
• Employees instigated 74% of major frauds
• Fraud was five times as likely to be carried out by a manager than an employee and at least twice as likely to be carried out by someone outside the company.

New Zealand research showed that poor internal control remained the major factor allowing fraud to occur. "Importantly, internal control is also the most common method by which fraudulent behaviour is detected. Weaknesses in internal controls, if identified by employees or third parties, may be too tempting not to exploit."

WHK Otago Comment

For peace of mind start managing the risk of fraud in your organisation today. WHK Otago can help you with a proven "Fraud Health Check" service which provides a concise assessment of your organisation's existing fraud defences and practical recommendations for improvement.

Contact WHK Otago Audit director Phil Sinclair to discuss further at email phil.sinclair@whk.co.nz or phone (03) 477 5790.