Headline results – what our survey revealed

Without doubt, the best way for us to keep fraud at bay is to treat the risk of fraud seriously. Although an organisation will never be able to reduce its fraud risks to zero, it can have in place the attitude and controls to prevent, detect, and respond decisively to fraud. Broadly, this includes:

• a clear and visible commitment from senior management towards fraud prevention and a zero tolerance to fraud;
• a sound policy framework, with policies that provide clear and concise guidance to staff on fraud and fraud-associated matters and outline clear roles and responsibilities for fraud prevention;
• established and well-controlled management processes and systems; and
• fraud-specific procedures that allow an organisation to identify and report incidents of fraud and monitor the remedial actions.

Low incidence of fraud in public sector

Overall, the incidence of fraud in our public sector appears to be relatively low. Less than a quarter of survey respondents (22.5%) were aware of any fraud occurring in their organisation in the last two years. What the respondents told us shows clearly that having a receptive culture that informs employees about the risks of fraud, how to protect the organisation from fraud, and what to do if a fraud has been detected is crucial in minimising incidents of fraud.

Trusting staff is not a fraud control

Respondents pointed out that they trusted their staff and colleagues to do the right thing – we want to be able to trust each other. However, trust alone is not a fraud control. Although many organisations take comfort from the fact that they are not aware of having been defrauded in the past and many public entities rely on “trusted employees”, nearly 80% of known frauds were committed by an internal person acting alone.

Good internal controls are important

The survey results show that public entities with effective management controls in place do well in minimising fraud risk. This is supported by the survey finding that 45.0% of all known incidents of fraud were detected by internal controls.

We need to be more aware of emerging fraud risks

Respondents told us that the main perpetrator in known incidents of fraud was an operational (46.3%) or administration/support service person (22.2%). However, in the current challenging economic environment, international data shows that fraud is increasingly committed by those at managerial level or above. This is a concern because people in these positions can often override controls and potentially better conceal their off ending. The results of our survey suggest that people working in the public sector are not necessarily aware of the emerging fraud risks and challenges. Nearly 70% of respondents did not believe that the current economic climate increased their level of fraud risk.

Three crucial elements

The results of our survey show that certain elements are crucial if organisations want to successfully minimise the risk and occurrence of fraud. These can be summed up as:

• having a receptive culture;
• communicating regularly about fraud policies and risk; and
• reporting suspected fraud to the Police.

Having a receptive culture is strongly linked to fewer incidents of fraud

Our survey showed a strong correlation between the culture of an organisation and incidents of fraud. Organisations where respondents felt they could raise concerns about fraud and felt that these concerns would be treated seriously had fewer incidents of fraud compared to those where staff felt there was a less receptive culture. Strong confidence in leadership and tone at the top also had a significant influence in building a culture against fraud.

It is vital to have an environment that encourages staff to come forward if they suspect fraud. Pleasingly, 95% of survey respondents felt that they would be willing to raise any concerns that they may have about fraud and that their concerns would be taken seriously.

Overall, our survey also shows that, although staff awareness and understanding of policies and management processes and systems is less than that of senior managers, public entities have the frameworks and, in many instances, processes that are necessary to prevent fraud. These include having and communicating a fraud policy and Code of Conduct, and ensuring that employees at every level of the organisation understand their responsibilities in relation to fraud.

Communicating regularly about fraud keeps fraud at bay

The results of the survey also show how important communication is in preventing fraud. For example, organisations that had a specific fraud policy that was regularly communicated to staff generally suffered fewer incidents of fraud.

Having appropriate policies and procedures is a good first step. However, for any of these to be effective, management needs to ensure that employees know about them and know how to use them.

Communicating previous incidents of fraud has also been shown to be an effective way to reduce fraud. Currently, communication of fraud incidents to staff is poor – with only 29.2% of respondents saying that management communicates incidents of fraud. However, the survey indicates that those organisations that had communicated previous incidents of fraud to staff had generally fewer incidents of fraud. This, again, highlights the importance of sharing information and communicating with staff to minimise the risk of more fraud occurring.

Reporting prevents more fraud occurring

Understandably, given New Zealand’s high values, our survey shows that most people (78.0%) were confident that if fraud were discovered in their organisation, it would be reported. For many, action by enforcement agencies is the confirmation that a fraud has occurred. However, only 39.5% of the frauds known to have occurred were actually reported to enforcement agencies.

Importantly, our survey shows how effective reporting to the Police is in preventing more fraud from occurring. Organisations that had reported previous matters to the Police had fewer known incidents of fraud. Of those who said that fraud was reported to the Police, 21.0% told us that fraud had occurred in the last two years. Of those who didn’t report previous matters to the Police, 49.0% told us that fraud had occurred in the last two years.

Where fraud has occurred but goes unpunished, staff confidence in management can be seriously eroded. This may have an adverse effect on staff who would otherwise report their suspicions of fraud.