SMEs warned as fraud cases double in six months to $217 million

Small businesses need to be vigilant in preventing fraud by keeping checks on payment systems and ensuring private corporate information can be accessed by a number of different employees, an industry expert has said.

The warning comes as new figures from KPMG reveal the value of fraud cases has doubled within the last six months to $217.9 million.

Gary Gill, KPMG national head of forensic, says the global financial crisis has provided employees with more incentive to steal. But as the economy recovers, he doesn’t expect the number of cases to drop.

“During the crisis there was an increase in fraud due to companies doing it tough, but it’s also worth considering that during this time companies were paying more attention to their bottom lines and thus more fraud cases were reported.”

The figures reveal the total value of fraud cases during the 2009 calendar year reached $317 million, from $221 million in 2008. The average case involved $2.6 million.

New South Wales accounted for 26 separate cases totalling $110 million, including an accounting fraud case worth $45 million. Western Australian recorded twice as many fraud cases during the six months ending December 31, while Queensland recorded Ponzi scheme worth $10.5 million and a $13 million duty evasion case.

Gill says the vast majority of these cases are being perpetrated by people within the company, where businesses aren’t putting enough regulations in place to reduce fraud.

“I think some key areas have been identified due to this study. It shows fraud is being committed by people inside organisations, and both by management and non-management employees. The management tends to involve fraud cases with higher value, but non-management tend to be responsible for higher numbers of cases.”

“Another point is that about half the frauds we investigate are on the issue of purchasing fraud. People inside the organisations set up a false buyer within the system, process payments have them finalised. In a business with fewer people, generally there is less segregation of duties, one person does everything and there is more risk.”

Gill says businesses need to ensure responsibilities are segregated, so a single employee can be tracked down if there is a problem. While he acknowledges even some cases can slip through the cracks, such as last year’s Clive Peeters case in which a payroll manager stole millions and invested in property, he maintains regulations must be put in place.

“From a small business perspective, the owners need to keep a close eye on the bank balance. Another important area is the online payments system, because while those payments are fine by themselves they often need a password, and that is protected by one person.”

“Of course, then you find that getting into the system is very easy. So what this really means is accountability, ensuring you have access to an online payment system that perhaps needs two passwords, and ensuring employees have responsibilities that can be tracked. Keep an eye on everything.”