November 30, 2011

Half of what?

The sesquipedalian accounting company PwC has a new business fraud report, claiming that half of all NZ businesses have been victims. This is from a survey with 93 Kiwi respondents, including some businesses with even fewer than 200 employees.

The obvious problem is that large businesses have many more employees and are much more likely to have at least one case of fraud.  Small businesses, of which there are many, are vastly under-represented.  A more dramatic example from a few months back was the claim by the US National Retail Federation that 10% of companies it polled had been victims of a ‘flash mob’ attack.   That’s not 10% of stores, that’s 10% of a sample of 106 companies including BP, Sears, and North Face.

The claim that fraud is on the rise could still be supported by the data, as long as the same methodology was used now as in the past, but the reported change from 42% to 49.5% would be well within the margin of error if the 2009 survey was the same size as the new one.

PwC’s Alex Tan explains the rise as “We’re a relatively low-wage economy but we like high-wage living.”  This certainly isn’t a result of the poll — they didn’t poll the perpetrators to ask why they did it — and it sounds rather like the classic fallacy of explaining a variable by a constant.   New Zealand is a relatively low wage country, but we were a relatively low wage country in 2009 as well, and even before that.  Baches are expensive now, but they were expensive in 2009, and even before that.   If low wages and expensive tastes are overcoming Kiwis’ moral fibre this year, how did they resist two years ago?

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Thomas Lumley (@tslumley) is Professor of Biostatistics at the University of Auckland. His research interests include semiparametric models, survey sampling, statistical computing, foundations of statistics, and whatever methodological problems his medical collaborators come up with. He also blogs at Biased and Inefficient See all posts by Thomas Lumley »

Comments

  • avatar
    Michael Kao

    Just want to point out that 95% of the business in NZ (reference: Lecturer from the Business school) employees less than 20 people.

    So even if all the large company has probability 1 of to have fraud occurring, it is very unlikely to make a large influence on the total percentage of business facing fraud.

    What this possibly suggests is that fraud is also relatively common among small businesses, but it could be much minor offence such as nicking a pack of chips in comparison to money laundering in banks.

    The size of the fraud should also be taken into account!

    Cheers,

    2 years ago Reply

    • avatar
      Thomas Lumley

      Thanks.

      I thought it would be roughly that (I was guessing 90%), but I couldn’t find a source in 5 minutes or so of Googling.

      2 years ago Reply

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