Fraud rife in financial services sector

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Fraud is no doubt a problem within Australia, according to the latest KPMG survey of fraud, bribery and corruption in Australia and New Zealand. But the biggest culprit, accounting for 86% in 2012 and 93% in 2011, is the financial services sector.

Of the $372.7m losses reported by respondents, $322.2m came from financial services organisations. Association of Independently Owned Financial Professionals executive director Peter Johnston said a lot of this fraud was coming from further up the line, in the funds management area, rather than the financial planners.

He said $150m of that $372.7m was probably from Astarra-Trio, when international crime gangs were getting access to the money. “Financial planners were satisfied that all the research reports were in order and all the trustee reports were in order,” he said. “Someone failed to go up to Hong Kong and say ‘show me the money’.”

AFA CEO Brad Fox also says that the various bans ASIC made throughout the past few years were typically not licenced financial planners.

“They’ve actually been unlicensed individuals that have still been committing some sort of fraud with some sort of financial services aspect to it, but it’s not that they’re actually advisers that are doing the wrong thing,” he said.

But both men agree that whoever is committing it, is tarnishing the reputation of qualified financial professionals across the country.

So who is the typical fraudster? According to the survey, he is male (75% of fraud was committed by men); earns less than $100,000p/a (though this is slowly starting to change, with a 92% increase in the number of offenders earning between $100-200,000); and holds a non-managerial position within his/her company.

Furthermore, most have a clean criminal background, proving that due diligence, including insolvency, track record and integrity checks, needs to be robust. The main motivation to commit fraud in 2010 was greed, at 93%. This dropped to 31% last year and was overtaken by financial pressure at 36%.

KPMG reinforces the importance of prevention when it comes to dealing with fraudulent activity, saying that staff-screening, developing a corporate code of ethics, renewing/improving internal controls and conducting fraud awareness training are the most popular methods used to nip the problem in the bud.

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