An international KPMG study shows over half of company fraudsters commit twenty or more frauds.
The typical company fraudster is a trusted male executive who gets away with over 20 fraudulent acts over a period of up to five years or more, according to the study by KPMG Forensic.
Weak internal controls help the fraudsters get away with their crimes, and whistleblowing is the most common way the frauds are detected
KPMG’s study takes a look at 360 actual company fraud cases which the forensic departments of KPMG firms in Europe, the Middle East and Africa have investigated over recent years.
The patterns are similar right across geographical regions: 85 per cent of fraudsters are male and the typical fraudster is aged between 36 and 55.
By the time he starts enriching himself by illegal means, he has usually been employed by the company for six or more years. He typically works in the finance department and commits the fraud single-handed. In 86 percent of cases he is at management level – and in two thirds of cases he is a member of senior management. Greed and opportunity are his motivating factors.
Worryingly for companies, the typical fraudster commits multiple offences over an extended period of time before being detected. Over half (51 percent) commit twenty or more frauds and a third commit more than fifty. Two thirds commit frauds for between one and five years, and nearly one in ten get away with it for over six years. With the total financial loss caused per fraudster being more than 1 million euros in 42 percent of cases, the financial toll on companies can be significant.
Richard Powell, partner at KPMG Forensic in the UK, said companies clearly have a challenge on their hands.
‘Over 60 percent of perpetrators are members of senior management, whose status in the company makes it easier for them to bypass internal controls and inflict greater damage on the company,’ he said. ‘Given the repeated and extended nature of most frauds, companies need to work extremely hard to detect frauds earlier through tighter internal controls, data analytical tools, and more widely publicised fraud reporting mechanisms.
‘Engendering the right culture is also important, to create an environment where it is less likely that fraud can take root.’
Weak internal controls are the most usual enabler of frauds. Not surprisingly, therefore, offences are most commonly discovered through staff whistleblowing. Management reviews are the second most common vehicle for detection.
How sensitively the affected companies react to fraud is shown by the fact that two thirds issue incomplete information or none at all about the incident. The employees, authorities and media are rarely informed for fear of loss of image. Consequently, offences only occasionally undergo criminal investigation. Mostly, independent investigations are carried out without the police or the public authorities being informed.
The financial damage inflicted by fraudsters can be severe. In many cases the affected companies have to bear the losses themselves.
Simon Whicker from KPMG Cayman said recoveries of losses from fraud can take several years to be completed.
‘Prevention, such as introducing ethics and integrity measures at the top management level, is always a more efficient and cost-effective means.’
Among the cases KPMG analysed in Europe, the highest proportion occurred in the public sector, with the rest fairly evenly split among other sectors such as industrials, communications and financial services. In Africa, 48 percent of cases were in the public sector, while this fell to just 15 percent in the Middle East.
To request a copy of the survey or for further information please contact Gundega Tamane, on 914 4309 or email [email protected].
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