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White collar crime

Published: 9:40AM Tuesday March 03, 2009 Source: Breakfast

Is white collar crime in New Zealand on the rise?

Fraud by employees and/or management within corporate and public sector New Zealand is in part, symptomatic of the economic downturn and it is on the rise. However, fraud detection is also on the rise as companies increasingly scrutinise expenses and cash books trying to understand where cost savings can be made.

"Fraud found now may have started 12 or 24 months ago, during the good times," says Nick Paterson, Ernst & Young's Fraud, Investigation and Dispute Services Executive Director.

Like a receding tide uncovering the rocks and all that is hidden underneath, the falling economy and pressure on companies is exposing an issue that might otherwise stay hidden.

"Current economic conditions are putting greater pressure than ever on companies, individuals, and families," says Nick. "As workforces are cut back, controls over key fraud risks become harder to manage and it becomes easier for fraud to occur. As a result, there is potential for otherwise honest employees to try to carry out fraud if presented with the opportunity. "

Criminologists in the early to mid 20th century identified that if opportunity and motive/pressure present themselves to an individual, and that individual can rationalise their actions, that is, tell themselves it is not wrong, then fraud will occur.

"We have seen a case where a lady in her sixties started "borrowing" the cash receipts from a company in order to pay her grocery bill, and potentially a gambling habit," says Nick. "The opportunity arose as she was the person responsible for the cash with no oversight. The pressure was the need to feed herself and her family, and she rationalised it by thinking of it as a loan from her employer. She believed, genuinely or otherwise, that she would at some point pay the money back, and as such she remained an honest upright person. "

What can you do about it?

Understanding your business at a practical level and ensuring that opportunities are not presented to staff is the simplest way to prevent fraud at all times, particularly during an economic downturn. Thereafter, if something doesn't quite make sense in your business, find out why and get to the bottom of the issue. That investigation may lead to fraud being detected.

If that happens, you will want to understand what has happened, how it has happened, and the amount of money at stake. Only then can full consideration be given to an employment issues, as well as a potential referral to the NZ Police or Serious Fraud Office, not to mention how best to address the issues to prevent the problem reoccurring.

"The discovery or suspicion of fraud can be a difficult time for an individual and an organisation. It may only happen once in your career. Therefore, taking advice from professionals who deal with fraud and related issues regularly and know what you are dealing with is your best defence," says Nick Paterson.

What questions should you ask?

Understanding your business and managing fraud means asking the right questions and having a plan in place before you need it.

a. Ask the members of the board - what is our "tolerance" for fraud and compliance within this company? What are the views of the board about fraud and corruption?

b. Who really owns and is responsible for fraud risk management within the organisation? Internal Audit vs. Risk vs. Finance vs. Legal

c. Would you think that your best defence for managing fraud risk is reactive or proactive? And what are you currently doing? What is your appetite to wait for a fraud to occur and then deal with the reputational and financial risks?

d. Are you more concerned about fraud and corruption now than you where 12 months ago? If so, what strategies or processes have you changed to reduce the risk of fraud occurring, i.e. what are you doing differently from before?

e. Do you have protocols in place to effectively handle a significant fraud event?

f. Do you have a Fraud Strategy or Fraud Framework to deal with fraud matters? What are you doing to leverage off the findings from investigations?

For more information contact:
Nick Paterson, Ernst & Young's Fraud, Investigation and Dispute Services Executive Director.

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