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$15 billion lost to fraud

CORPORATE fraud affects more than 50 per cent of Australian companies and costs between $15 billion and $20 billion a year, according to the latest national KPMG National Fraud Survey.

At a recent Australian Institute of Company Directors briefing on corporate fraud in the state, WA Police Service commercial crime division acting detective superintendent Peter Lavender said more than 30 per cent of such matters were dealt with internally and never referred to police.

Supt. Lavender said the survey indicated the average annual fraud loss per company was around $450,000.

“WA Police Service annual crime statistics reports revealed 7,537 fraud offences were reported in the 1995-96 fiscal year with a total value of $38,926,179,” he said.

“In 1996-97, 8,784 fraud offences were reported and another 7,033 offences were reported in 1997-98.

“This is believed to represent only a percentage of actual frauds perpetrated on companies in WA.

“Many matters are referred to other agencies such as the Australian Securities and Investments Commission, Ministry of Fair Trading and the Australian Federal Police,” he said.

Supt. Lavender said the survey showed the majority of fraud offences were committed by managers.

“Managers were responsible for 52 per cent of frauds, followed by employees at 25 per cent and external persons at 23 per cent,” he said.

Orna Management Australia managing director and corporate fraud expert John Westall said the figure for managers was conservative and would “probably be something in excess of 60 per cent”.

Motivations for committing fraud ranged from a ‘they owe me’ attitude to revenge.

Opportunity – due to the position of the offender in the company or lack of procedures for prevention – was another main cause.

Mr Westall said more than 80 per cent of theft and fraud suffered by companies was from internal sources.

“People have a notion that a fraudster must be a mastermind hacker but that’s very rarely the case,” he said.

Mr Westall said around 60 per cent of the money laundered in and out of Australia was likely to be corporate.

“People associate money laundering with drugs and arms running but fraud figures would indicate blue collar crime is the most prevalent.”

Mr Westall said more sophisticated forms of commercial fraud were increasing at a fairly high rate.

Fraud involving intellectual property is also becoming a major problem.

“Under criminal law, intellectual property can be a bit of a grey area,” Mr Westall said.

“In reality, an appropriated or misused patent is outright theft and unauthorised use of a company’s most valuable asset.

“Organisations should expend as much effort protecting intellectual capital as much as they do physical property.

“Nobody is taking this very seriously in Australia at the moment. The majority of our clients in this area are from overseas.”

Supt. Lavender said current trends indicated identity fraud was on the rise due to modern electronic technology and said managers and executives were advised to be more vigilant.

He said the WA Government recently provided the Major Fraud Squad with $1.6 million over four years in special funding to combat white collar crime.

Mr Westall said there was a gross disparity between the extent of fraud activity in Australia and the amount of action taken, both preventative and reactive.

“A lot of fraud is ‘written off’, and while this suits the bead counters, it will always spell a loss for the company,” he said.

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