Expert comes up with honest answer to frauds

Fraud may be costing New Zealand's public and private organisations as much as 8 per cent of their income or expenditure, says British anti-fraud consultant Jim Gee.

He believes it is time to "get smart" and focus on prevention rather than detection.

Gee, a counter-fraud specialist for more than 25 years, is head of fraud and forensic services at MacIntyre Hudson.

Having reviewed the New Zealand Ministry of Health's counter-fraud arrangements in 2007, he will be in the country again shortly with his work as a principal in the Protect Consortium, a group of senior New Zealand and UK specialists working to protect public organisations - and their money - against fraud.

Gee told the Business Herald a big part of his work in recent years had been helping develop ways to accurately measure total fraud losses within organisations, "pretty much like they would know any other cost they have such as staffing, procurement or accommodation".

Of those exercises, 58 have shown losses are somewhere between 3 and 8 per cent of income or expenditure.

He sees no reason why, despite perceptions that corruption is a relatively small problem in New Zealand, that its organisations are not suffering a similar level of losses.

"That's quite a lot of money when you think about the amount of money that's spent in your public sector or the UK public sector.

"Indeed it's quite a lot of money in any decent sized private sector company."

Gee believes gauging the scale of the problem is essential to coming up with solutions.

Much anti-fraud work has involved solutions based on quite an anecdotal and unscientific understanding of what the problem is, "but if you understand how big your problem is you can invest in the solution proportionately".

For Gee that has meant moving away from a reactive approach and developing pre-emptive solutions.

"I set up and ran an organisation to protect the UK National Health Service from fraud and even after eight years with 500 people we were only detecting something like one-thirtieth of all the fraud taking place. When we realised there were limits to how good you could be at detecting it and stopping it, we got smart, we started to do more work around changing the culture of organisations.

"Somebody once said to me that of all people there are about 10 per cent who are pretty much always dishonest, 10 per cent who are honest and 80 per cent who are opportunists.

"If you can change the proportions there, change some of the opportunists into a category where they're always honest, if you can do what we call "mobilise the honest majority" then you can create really strong peer group pressure and then you can use that peer group pressure to shrink the size of the group that are dishonest then you have less people attempting fraud in the first place that's less fraud you have to prevent and detect."

"There are many different things you can do, but you fundamentally have to make sure people understand they gain more by behaving well rather than behaving badly.

" In the NHS we redistributed some of savings from fraud, it went back specifically to pay for better patient care. People rapidly learned they gained more from helping us and working with us than from perpetrating fraud."

Gee and his team reduced NHS fraud losses by up to 60 per cent, giving more than £800 million ($1780 million) worth of benefits.

Gee admits this approach is not effective against low-volume high value fraud of the type that tends to get the most coverage in the media, "but the measurement exercises show that the greatest economic losses to organisations whether public or private sector, whatever country they're in, come from much more mundane high-volume low value fraud".