Fraud activity may pick up in resources

The resources sector in Australia and New Zealand may now be exposed to higher levels of fraudulent incidents involving the theft of funds and physical assets, according to a KPMG survey.

The 2008 KPMG Fraud Survey revealed that the most common type of fraud suffered by respondents last year in this sector was theft of funds (57 per cent), followed by theft of physical assets (30 per cent). Other schemes such as false invoicing (15 per cent) and theft of plant and equipment (15 per cent) were also prominent in the resources sector.

Commenting on the results Matt Fehon, KPMG Forensic Partner said the survey confirmed that because there is a large volume of funds flowing through the sector and large quantities of physical assets that it is a common target for fraudsters. He added that this was likely to increase in the current environment of contract withdrawals reductions, cost pressures and decreased performance for some companies.

The rates of these types of fraud upon organisations in this sector were all proportionally higher than those recorded in the other industry groups. Of the ENR respondents to the survey, the average loss per organisation was $33,000.

"These figures are concerning. Whilst they are not of the magnitude reported in the financial services sector, which is expected, the expansion in the resources sector during the survey period (Feb 2006 - Jan 2008) reflects the difficulty organisations have in maintaining effective internal controls and effective oversight of remote locations," said Mr. Fehon.

Although the levels of fraud are high in the resource sector, the survey revealed that in detecting fraud, the sector is more successful because of the use of internal controls. This reflects the positive measures taken to mitigate the risk of fraud and the importance of having effective reporting mechanisms in place.

The survey revealed that approximately half of respondents from all sectors suffered at least one fraud during the survey period, which was also consistent with the reported incidents by organisations in the resources sector.

The survey showed that 80 per cent of fraud in the resources sector was committed by internal parties. The most common motivator for incidences of fraud was greed, which was ranked as a more common motivator than gambling which was reported as the main motivator for many other sectors.

Increased cost pressures will increase the risk of fraud occurring, and potentially for higher sums to be defrauded. In the current environment there are increased risks of theft of confidential information, intellectual property, plant and equipment, as well as financial misstatement, due to variety of reasons including disgruntled or opportunistic employees. .

"In order to protect against the risk of fraud organisations need to check that their internal controls, fraud risk management and reporting strategies are robust. Too often the phase 'prevention is better than the cure' has been ignored during boom times. The effects now on a company can be catastrophic." he said.