March 09, 2013

Australian Business Fraud Puts Profits at Risk

A major insurance company has announced its plans to axe 700 jobs across its international branches but the company CEO has dismissed enquiries that 3,000 jobs would be cut in North America, Europe and Australia by 2015. Earlier reports had cited the bigger figure but the company head said that the organisation had yet to discuss or reach consensus on the bigger changes that needed to take place.

Earlier news reports had alleged the company’s decision to launch operations in the Philippines had come at the loss of 3,000 jobs for employers, Europe and Australia. The chief executive has not really commented on whether this is still likely to go ahead but has indicated that it is on the table for discussion.

The insurance company also warned consumers that local premiums would increase further still in 2013 because of difficulties sustained by its North American operation. Furthermore the insurance giant is battling through the challenging financial climate with cost-cutting measures that are estimated to be bringing about $244 million back into the company, but experts predict that part of the saving is going to come from job losses.

The company has posted a $741.97 million net profit for the year up to December 31st, an 8% increase in profit compared to the corresponding period before. Despite the increase the figure was lower than the forecasted target and expectations issued by economists.

The insurance company has also reduced the proportion of profit shares for members to 50%, from 70%. Despite taking less claims for catastrophes in 2012 the company had to pay out $452.40 million because of accident claims filed the year before. Business in North America took the biggest knock because of the ravages of drought and severe storms, while Australia and New Zealand both showed significant improvements as the local companies made a conscious effort to manage risk from natural disasters. 2012 saw premiums increase by approximately 5%, a figure expected to be repeated in 2013.

The profit declaration comes at a time when a number of companies have announced cost cutting measures and taken up more convenient business operations through using temporary offices or even having workers telecommute, that take care of their base needs at a more affordable rate. One other critical aspect that has come to the fore is fraud prevention for businesses, with statistics showing us that business fraud is on the increase and, it appears, the greater the number of employees, the higher the risk of it occurring.

Business fraud has cost the economy at least $373 million over the last two years, according to a leading audit firm, and that is probably only the tip of the iceberg. According to the new forensic results nearly half of the businesses surveyed had experienced fraud, but only 15% of them viewed it as a risk, with a number of cases going unreported.

What’s worse is that most fraud happens from inside an organisation and is committed by staff and seemingly loyal employees. In other countries manipulated interest rates and rogue trading have been dominating headlines and experts say it is a warning for businesses to be more vigilant about the risks.

Statistics also suggest that the rate of collusion between third parties and insiders has gone up. During 2012, 74% of fraud in the finance sector was committed by external parties and 69% in the non-finance sectors. When fraud occurs at management level it incorporates activities like false invoicing and cash theft, while internal fraud usually results in tendering.

Small businesses seem to be doing better in this field however with only 9% of small businesses with fewer than 100 employees falling prey to fraud. Unfortunately, 31% of organisations with 101 to 500 employees are getting ripped off but when the tally surpasses 500, the ratio of businesses being affected increases to 45%.

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