Liquidators find finance fraud on rise
Discovery of fraud in the financial statements produced by staff within companies is increasing, according to liquidators examining recent corporate collapses.
A partner at PPB Advisory, Peter Morris, said he was seeing more financial statement fraud including staff fudging financial reports, excluding information, faking revenue or asset value, or understating expenses.
He expects to be able to reveal in coming months that financial statement fraud has been found in several recent collapses.
"Through the restructuring process we are finding that there are issues of financial statement fraud that is going on and have been going on for a number of years. [The fraud has] a mask of profitability that tricks people into thinking the organisation is performing better than it really is," Mr Morris said.
"It is usually people working in finance who are responsible for the fraud. From a chief financial officer to a staff member who was given instructions such as 'we are expecting to meet these performance hurdles'."
KPMG Forensic's recent survey of fraud, bribery and corruption in Australia and New Zealand found an increase in collusive behaviour, which also made it harder to detect fraud because several people were covering it up.
KPMG partner David Luijerink said staff in the financial department "know how the accounts work and know where the weaknesses are [and] know how to exploit it".
Financial statement fraud was often committed by someone in a position of trust who produced work that was too complex to be double-checked by anyone else, he said. For example, the same group of people was often asked to produce and reconcile the company's accounts.
"I think we are seeing a little bit more, but it is often tied to economic cycles ... [we are] not talking about normal consumer fraud. We are talking about stuff that is not picked up for two years after it starts."
The top contributors to corruption were a "lack of senior management commitment to ethical conduct" and companies operating in "inherently unethical" industries.
Corporate management fraud accounts for just 1 per cent of incidents, but 18 per cent of the value. Similarly, fraudulent statements account for 6 per cent of incidents, but 20 per cent of total value, according to KPMG's report. While financial statement fraud was usually committed by a group of people for the sake of the company, individuals were still personally liable.
Mr Morris said it can be a shock to finance department staff to realise something they did to help their employer could land them in jail.
He has found the fraud helped companies stay within their loan conditions, or get a larger loan, or window-dress ahead of a merger.