The Cost of Fraud?

In a number of recent surveys of global and domestic enterprises, more than half of the companies interviewed had suffered a significant fraud in the last year. These findings come at a time when governing bodies are reviewing their responsibilities following the tightening of corporate governance practices worldwide.

• The key findings of the global survey include:
• excluding 'unknowns', a majority of companies (55 per cent) said they had suffered a significant fraud in the last year, with nearly 20 per cent suffering more than 10 frauds;
• nearly half were frauds of more than $100,000 with 13 per cent exceeding $1 million;
• the biggest offenders were company managers, who were responsible for 55 per cent of frauds – other employees were responsible for 30 per cent of frauds;
• some 85 per cent of managers committing the largest frauds were in their position for less than one year; and
• recovery rates have increased from 29 per cent to 51 per cent as more is being recovered from insurers, banks and suppliers.
  Transient staff, the growing complexity of organisations and the internet are all fuelling this dramatic increase in risk.

Another recent survey of more than 3,400 companies, not-for-profit organisations and government bodies in 15 Western and Central European countries found:

• 42.5 per cent of major European organisations have suffered serious economic crime over the last two years;
• this costs them, on average, 6.7 million Euros;
• 58 per cent of these frauds were discovered by accident;
• only one-in-five organisations have been able to recover more than 50 per cent of their losses; and
• over 70 per cent of organisations believe future fraud risks will be the same or greater.

Fraud also tends to increase during an economic downturn so companies across the globe should watch out for their surviving senior management – especially those new to management.

In recent times we have undertaken a number of fraud investigation reviews to either assess a current concern or review the procedures in place to prevent a fraud. Our focus has been to review, document and assess organisational controls to prevent fraud and provide organisations with advice on control procedures and systems. We have performed fraud prevention reviews in the following industries:

• retail;
• construction;
• manufacturing and distribution;
• not for profit; and
• hospitality.

What are your fraud prevention and detection procedures like? If you are concerned about the implications of fraud in your organisation, please contact George Dakis, Partner of Audit & Assurance, on 9608 0106 or gdakis@nexiaasr.com.au to discuss your concerns.

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