Cold, Hard Facts


Chilling Findings on Company Fraud

All men are frauds.  The only difference between them is that some admit it.  I myself deny it.

- H L Mencken

by Jillian Talbot

Business advisory group PriceWaterhouseCoopers has issued a chilling warning to companies complacent about fraud: just under half of New Zealand businesses are thought to suffer from it, and it is expected to get worse.  In a global study that encompassed Australia but missed New Zealand - supposedly because our businesses are similar in sophistication - the group found that 47% of Australian businesses suffered from economic crime in the past two years.  Most companies expected fraudulent activity to increase in the next five years.

PWC dispute analysis and investigations partner Malcolm Shackell said that, after working and liaising with New Zealand businesses, the Australian findings could be applied "pretty much equally to New Zealand."  Overall, the Asia Pacific region found 39% of businesses experienced fraudulent activity.  Mr Shackell said he was not surprised at the results - particularly with the high rates in Australia.  There were a few reasons for this: because fraud awareness was higher in developed countries and because businesses used computers more in developed countries.  More computers in the hands of employees meant a greater opportunity for fraudulent activity, he said.

Economic crime includes:

bulletasset misappropriation
bulletstealing assets or cash from a business
bulletfinancial misrepresentation
bulletfalsifying financial statements
bulletpiracy, theft of information, corruption and bribery
bulletcyber crime.

Asset misappropriation stood out as the most common form of economic crime.  Other problems such as bribery and product piracy were revealed as big problems in other Asian countries.

Bigger firms, or those with more than 1,000 staff, were most vulnerable to fraud.  More transactions and more employees contributed to that, Mr Shackell said.  "The majority of economic crime is actually caused by employees."  The most crucial information to companies was now stored on a computer, he said.  "If someone can get into those systems unlawfully - then you have a problem on your hands."  Firms were not doing enough to prevent it.  "Organisations rely far too much on the intangible fraud control mechanisms like policy statements and ethics," he said.  "What they need to be doing is concentrating on more tangible proactive fraud control techniques."  That included pre-employment screening tests - something not common in either New Zealand or Australia - whistle-blowing policies, senior management education about fraud and risk-assessment by professionals.

"Get experts in there to tell you where your fraud risks are, and have a fraud reaction plan so you can deal with it quickly, nip it in the bud and gather evidence."  Getting incriminating evidence that would hold up in court helped.  "Proving economic crime beyond reasonable doubt - which is the criminal standard - requires a lot of work and a lot of resources," he said.  "That is why a lot of economic crime is often dealt with in the civil courts where the standard of proof is, arguable, a little bit lower."  Companies should also be looking at buying specific economic crime insurance - something called fidelity insurance.

Source: New Zealand Herald 12 July 2003

Offenders Thumb Nose at Community Work

by Martin Kay

Sixty per cent of offenders ordered to do community work fail to complete their sentences, according to a union representing work party supervisors.  Janice Gemmell, organiser for the National Union of Public Employees, said only 40% of community work sentences were carried out properly, with many offenders not turning up at all.  It was usually weeks, sometimes months, before offenders who did not comply were tracked down and referred back to the courts.  Even then, many were resentenced to community work and "the whole cycle starts again".

Community work was introduced with the Sentencing Act last year, and replaced community service and periodic detention, which was one step down from jail.  The work normally involves improvements to some aspect of a community, such as painting schools or building walking tracks in parks.  It is usually carried out at weekends under the supervision of one or two Corrections staff.  But Ms Gemmell said non-compliance was so rife Corrections wanted to be able to send supervisors home without pay if there were not enough sentenced workers on their shifts.  The department had sought the measure during negotiations for a new collective contract.

Christchurch NUPE members began a series of rolling strikes on Saturday to resist the move, which would mean supervisors who were meant to be paid for 9 hours a day would be paid for only 3 if too few workers turned up.  "It is unacceptable that, instead of chasing up offenders, they send home employees," Ms Gemmell said.  The union, which represented about 50 of the 300 supervisors nationally, wanted its members to spend their time trying to contact non-compliers rather than be sent home.  She said the probation service was often too lax in following up absentees, and in some cases sentences lapsed without any action.

Katrina Casey, probation and offender services general manager at Corrections, said the department was satisfied the probation service monitored and followed up defaulters.  The department's 2002 annual report shows 20,404 offenders were sentenced to periodic detention and 7,557 to community service, the two sentences that were combined into community work.  The successful completion rates were 70% and 67% respectively.

ACT justice spokesman Stephen Franks said NUPE's claim of a 60% non-compliance rate matched what the justice and electoral select committee had heard from Corrections staff during hearings on the Sentencing Act.  "They said that many non-compliers were not followed up simply because it was too much hassle."  National Party corrections spokesman Tony Ryall said he had been told that about 60% of community work offenders were not showing up.  It was hypocritical of Labour to preach that employers bargain in good faith while proposing to send workers home without pay for something over which they had no power.

Source: Stuff 20 October 2003

Donald Hugh Simcock, convicted of three counts of fraud in connection with the Flat Rock Forests Trust, received a sentence of community service, in part I am told, because he expressed remorse.  He subsequently filed an appeal because he said he was not guilty.  So - for what past misdeeds, exactly, might he have been experiencing moral anguish arising from repentance?  Perhaps unitholders will never know...

For news articles on the Flat Rock Forests Trust, forestry, the Serious Fraud Office, one immigrant family's experiences, immigration specialists, fraud, juries, logging, and more, pressing the "Up" key below will take you to the Table of Contents for this News section.  Or you may wish to visit the Forestry Trust Index to read how a unit trust went bust.  Or the Topics Index which offers a different approach to lots of topics - among them poisonous insects, eating dogs, what's addictive, training vs teaching, tornados, unusual flying machines, humour, wearable computers, IQ tests, health, Y chromosomes, share options, New Jersey's positive side, oddities, ageing, burial alternatives, capital punishment, affairs, poverty, McCarthyism, the most beautiful city in the world, neverending work and more...

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