Too many crooks spoil the company broth

Major fraud is rife, according to the usually reserved accountants at KPMG, and is now an "unacknowledged epidemic".

According to KPMG's Fraud Barometer, a regular report compiled by the firm's forensic accounting team, the total value of frauds reaching the nation's courts has more than doubled in the past six months. It's up from about $100 million in the June half-year to more than $217 million in the December half.

According to Gary Gill, national head of KPMG's forensic accounting team, "there is little sign of the epidemic subsiding".

"I think what we are seeing in the courts is just the tip of the iceberg," Gill said. "I think we are seeing a few more people being caught due to the global downturn, which has made companies more diligent in looking for internal fraud, but the problem is still very serious."

Since June 2008 there have been 310 fraud cases tried in Australian courts, and the total value of those frauds comes in at just under $540 million.

Businesses are the major victim, with fraud against commercial enterprises accounting for 28 per cent of cases coming to court. "The majority of these frauds involved employees, managers or directors manipulating accounting records in order to misappropriate funds," the report says. "These misappropriations typically involve false invoicing."

Banks and other financial institutions are the next big fraud target, accounting for 20 per cent of cases. KPMG found banks were "particularly vulnerable to high-value frauds" and in the December half accounted for a third of the value of frauds reported.

According to KPMG, organised crime is also rising, notably credit card and Eftpos "skimming" crimes by overseas gangs.

"Frauds committed by groups of conspirators and organised crime syndicates are significant," the report says. "In the latest period, an Eftpos card-skimming fraud in Western Australia netted the perpetrators around $4 million. It is thought to have been the largest fraud of its kind so far prosecuted in Australia."

According to KPMG, Australia should prepare for a rise in such crimes: "These sustained attacks by professional fraudsters against government and financial institutions should serve as a warning to Australia in light of the increased incidence of skimming and phishing scams in recent times."

Overseas gangs are the least of a company's worries. "Most organisations remain at greatest risk from frauds instigated by their own managers and staff," the report says.

"By far the most common form of fraud can be described as accounting fraud . . . Manipulation of the accounts payable function by the creation of fictitious suppliers and payments is the classic accounting fraud."

At $53.3 million, accounting theft made up a quarter of all reported fraud in the December period. Internal bank fraud accounted for $49.3 million and investment scams $44.7 million.

Trading charges

TIMES have been tough for Moody's. The ratings company assesses the debt levels of big companies, financial institutions and sovereign issuers, and has been criticised for missing the toxic debt crisis that sparked the global financial crisis.

Now Moody's has another reputational crisis to deal with in Australia.

Daniel Joffe, 33 a former associate analyst for Moody's Investor Services yesterday appeared in Sydney's Downing Centre Local Court to face 10 charges of insider trading.

Joffe appeared alongside his friend, 31-year-old Nathan Stromer, of Bondi, who is accused of making all the share and derivatives purchases.

According to the Australian Securities and Investments Commission, Stromer bought shares, warrants and contracts for difference (CFDs) in listed Australian companies while in possession of "inside information which Joffe had acquired in the course of his duties with Moody's Investor Services and passed on to him".

According to ASIC, the trades occurred between 2006 and 2007.

The alleged deals include buying stapled securities in GasNet Australia and Auckland International Airport while having inside information about a proposed takeover bid, as well as CFDs in Alinta Infrastructure Holdings, Sydney Roads Group and Macquarie Bank, at a time when Joffe had inside information that the companies were the target of a takeover bid.

Neither Joffe nor Stromer entered a plea, and the matter will next be heard on June 1.