Kiwis Use Fraud To Maintain Lavish Lifestlyes

The secret’s out! Now we know what keeps that lavish Kiwi lifestyle of bachs, boats and bbqs afloat.

Fraud is thriving in NZ due to the recession and it’s allowing people to pursue, or maintain, affluent lifestyles

Regular readers may remember that we’ve commented on fraud and corruption a number of times in this blog, in both the public and private sectors.

In April the ACC referred matters of “serious concern” to the Serious Fraud Office.

In February an investigation was carried out following allegations of fraud and bribery at Housing New Zealand.

More recently A Work and Income employee faced two years’ jail after using false identities and inventing a child to defraud more than $36,000.

The Immigration service has  been dogged with problems over the years. Many of you already know that (Ex) MP Phillip Field was found guilty of bribery and corruption and that former immigration boss Mary Anne Field “consistently breached” the requirements of public servants to manage conflicts of interest.

Then there was former list MP Donna Awatere Huata who was convicted of fraud and the recent brouhaha over MPs expenses and credit card spending.

Today we are told that a NZ visa officer in New Delhi was sacked after an internal investigation into corruption claims (thanks to P Ray for the tip) According to the Herald “The agency is also facing ongoing Indian police investigations after Tauranga lawyer Vinay Deobhakta lodged a complaint of corruption with police in India after Immigration New Zealand closed its investigation into an earlier complaint.”

But the private sector has also had its problems. Bernadine Claire Warren, 37 is a beauty therapist and has just been jailed for 2.5 years for defrauding her employer of nearly $300,000.

It’s interesting to note that employers’ names are often suppressed in these cases, or never released to the public (See “Now a business gets name suppression” a $1.1 million fraud in Tauranga) There have been countless cases in the news recently, as a google search will show you.

In April we wrote about the results of a PriceWaterhouseCoopers’ Global Economic Crime Survey that showed that NZ has higher rates of economic crime than its closest neighbours and is way above the world average.

The Global Economic Crime Survey, carried out annually by one of the world’s largest accountancy  professional services firms PriceWaterhouseCoopers, showed that a massive 42% of organisations in NZ had suffered from fraud in the last 12 months (against a global average of 30%) and 46% of it was committed by middle and senior management. The average fraud is costing around $500,000 in each business.

PWC is a Big Four auditor, alongside KPMG, Ernst &Young and Deloitte Touche Tohmatsu, so their report must carry some credence. This was the largest international survey of its kind with over 3,000 organisations taking part across 54 countries. 85 organisations from across the public and private sectors took part in the survey. From the PWC website back in April:

• Financial statement fraud was cited by 36%. Since (the) last survey in 2007 we have noticed a significant trend in the perpetrators of fraud towards middle and senior management. When we align that trend to the fact that New Zealand organisations say that staff reductions have resulted in fewer resources deployed on internal controls and that internal audit were being asked to do more work with less staff, we believe that there is cause for concern. It is people in middle and senior management that are more able to override controls within an organisation.”

• Intellectual property theft was at 17%.

• In 72% of all cases the fraud was committed by someone inside the organisation.

…“(The) survey shows that economic crime continues to be a serious issue affecting New Zealand organisations with the current economic crisis increasing the pressures and incentives to commit fraud. New Zealand had the eighth highest reported level of fraud across the 54 countries that took part, with 42% of our respondents saying that they suffered from some form of economic crime in the last 12 months. The average cost of fraud in New Zealand was $491,506 with one organisation reporting that economic crime cost them in excess of $7 million in the last 12 months.”

This update appeared in today’s Herald. Fraud continues to be a serious issue in New Zealand and is being used to maintain the luxuries of Kiwi lifestyles during the recession.

Kiwis have low wages yet still like their “toys” – cars, boats, beach houses and gambling to excess. People need to accept that this goes on in New Zealand and that the word “Fraud” is missing from the vocabulary of some organisations.

More fraud as people try to keep up lifestyle

By Rachel Tiffen

People are committing fraud to maintain lavish lifestyles during tough economic times, claims a leading economic crime expert.

Nearly half of 85 New Zealand businesses that responded to a global survey on economic crime admitted experiencing fraud over the past 12 months. This compared with 30 per cent across the globe and 24 per cent in the Asia Pacific region.

Speaking at a conference on white-collar crime and serious fraud in Auckland last week, Alex Tan of PricewaterhouseCoopers said people struggled to give up their luxuries when the recession struck. “We have a very basic fraud environment, which is just that people want to spend the money, whereas in certain countries such as the US they have that but they also have Enron-type fraud involving CEOs and the like manipulating financial statements,” Mr Tan told the Herald. “A big reason is because we have comparatively low wages and we like our toys, we like the cars, boats, beach houses and some like to gamble to excess.”

Of 3000 organisations that responded to the 2009 PwC global economic crime survey, 85 were from New Zealand – ranging from 21 per cent in the government and public sector to 8 per cent in insurance. The average loss to fraud over the past 12 months was $492,000 – the largest topping $7 million.

Mr Tan, who spent nine years in the Hong Kong police and eight years in its Serious Fraud Office, said it was about raising awareness and putting practices in place. “In the current economic environment, if people see a weakness there could be a large incentive to exploit it … some people are finding it difficult to manage.” Mr Tan said the profile of the internal fraudster was moving away from junior staff to middle and senior management who had more ability to override controls.

It was about a change of mindset and accepting that it went on in this country.

Staff at one organisation Mr Tan spent four days reviewing refused to let him use the word fraud. “We still have this inherent ignorance about fraud and corruption,” he said.

Mr Tan said the percentage of fraud reported by New Zealand businesses was down on the 2007 study, because that accounted for two years…”

But what can you expect when many NZx50 companies simply don’t have adequate policies to prohibit fraud and facilitation payments? In the Box widget at the side is a report by Transparency International titled “As good as we are perceived” from which the quote below was taken. It demonstrates how perceptions can be markedly different to reality.

Next time you see a “least corrupt nation in the world” statement made you may wish to read that report before investing your money in New Zealand because you have an important role to play in combating fraud when making that investment decision. Don’t always accept bland statements without question.

“The bottom line appears to be that many of New Zealand’s largest listed businesses don’t pass some fundamental best practice ethics tests”

According to Transparency International’s annual Corruption Perceptions Index, New Zealand is perceived as the least corrupt nation in the world. We were interested to see if CAER’s research data for New Zealand supports this perception.

Of the companies on the NZX 50, 44% have policies prohibiting bribery and 18% have policies on regulating facilitation payments. This does not compare favourably with the percentage of companies prohibiting bribery in comparable markets overseas. Of the top 100 companies by market capitalisation in the UK, 72% have explicitly prohibited giving and receiving bribes. In Europe the figure is 57% and in the US it is 69%.

Few companies augment their policy with an adequate system to encourage a culture of compliance with anti-corruption policies. Out of the NZX, only 16% of companies have a code of ethics system that CAER rated as ‘advanced’. Only 5 companies had a code of ethics that prohibited facilitation payments.

The NZX should seek to increase the number of companies that address the issue directly. Companies are far more likely to include ethics elements suggested by the NZX than those that
are not.

Corruption can have uncertain consequences for investors that stem from the additional types of risk corruption introduces. Investors have a role to play in encouraging companies to prohibit bribery and corruption by including this type of risk in investment decisions.

The bottom line of this research appears to be that many of New Zealand’s largest listed businesses don’t pass some fundamental best practice ethics tests. Transparency International (New Zealand)’s message is that the laggards need to take action and get the ethical dimensions of their businesses sorted out if they are to justify the confidence of their stakeholders including shareholders and the public. As the global financial crisis highlighted, there is a lot at risk including shareholder wealth, employees’ jobs and New Zealand’s reputation. We need more ethical leadership from New Zealand business in relation to these issues…”

See also:

7 Immigration Staff Fired For Serious Misconduct : ” Seven Immigration New Zealand staff have been sacked for serious misconduct this year. Immigration New Zealand spokesman Nigel Bickle told NZPA the cases included one worker in New Delhi and six in New Zealand. “The majority of the cases involved conflict of interest issues, and involved the non-disclosure of interests in family or friends’ immigration applications.”