A study conducted by KPMG has revealed some interesting information about the typical perpetrator of a fraud, why they steal and who they target. Seventy-two percent of cases involve men only. Over half of company fraud involves two to five people. Forty percent of fraud involves employees from the finance department.
The analysis examines 100 of the fraud cases that KPMG has been called in to investigate over the past two years, from which a profile of a fraudster has been created. Alex Plavsic, national head of fraud investigations at KPMG, said: “One of the alarming findings from the study was the seniority of the perpetrators - we found that directors or senior managers committed almost two thirds of the 100 cases surveyed." “Fraud can have a devastating effect on a business, both from a financial and reputational perspective, which is why most companies try to keep the discovery of fraudulent activity as quiet as possible.”
Who? The analysis found that many of the perpetrators were long serving employees - 32 percent of them had been working for their companies for between 10 and 25 years. And they were not operating alone - in more than half of all the cases (51 percent) two to five parties were involved in the fraud, compared with only one in three cases carried out solely by the perpetrator. The number of people involved in some of the cases (more than five people in ten percent of them) is indicative that fraud can be endemic within some departments and consequently more difficult for outsiders to detect. In one case analysed, 207 individuals were involved in a single fraud.
In 72 percent of cases, the fraudsters were found to be male-only. Female-only fraudsters were identified in seven percent of cases and both male and females were involved together in some 13 percent of cases. In the remainder of cases, no perpetrator was identified. The age of the principal fraudster was typically between 36 and 45 (41 percent of cases). 29 percent of cases involved those aged between 46 and 55. Those aged between 18 to 25 made up only one percent of perpetrators.
The finance department is the most likely business area that the fraudster targeted or was responsible for (40 percent of cases). Procurement was the next most likely area (12.5 percent), while one in ten frauds occurred in the sales area.
How? A weak control environment was the primary reason. In half of the cases surveyed, this was the weakness exploited by the fraudster. In nearly one in three incidents it was the perpetrator abusing their key authorities. Just over one in ten frauds were achieved by the fraudster operating in alliance with others to circumvent controls. While the finance department is often perceived as guardian of control, it remains the top opportunity and target for fraudsters.
And if company directors are hoping that their internal controls are robust enough to pick up fraud they are likely to be disappointed - only one in four were detected by a management review. 31 percent of frauds were discovered following an employee blowing the whistle, an anonymous tip-off or a report by an external third party. Whistle-blowing is an important weapon in the fight against fraud, despite this, the survey found that while four in ten employees were aware of or suspected that a fraud was occurring, they took no action.
Why? Personal gain was the most likely reason (41 percent) for committing fraud. External pressures were also a trigger for fraudulent activity with one in eight cases caused by the perpetrator getting into financial difficulties. In nearly 33 percent of the cases the amount stolen was more than £1 million while in 26 percent of the cases, it was more than £100,000.
How do companies respond? Dismissal of the perpetrator was the most common response with 55 percent of the fraudsters being fired. However, in just under one in five cases no sanction was taken and this may be because of concerns about the reputational impact of fraud becoming known.
This is borne out by the fact that in 69 percent of cases there was no publicity surrounding the investigation or subsequent sanction, while only six percent of companies chose to publicise the fraud.
On a positive note, in a third of cases, businesses had recovered or were taking action to recover cash or assets following a fraud. Alex Plavsic adds: “This study has highlighted some worrying findings, and particularly demonstrates the need for companies to continually review their internal controls. Regular testing of key controls against the risk of fraud will identify any weaknesses in the system, which could easily be exploited by potential fraudsters."
“Internal controls can only be effective if companies have the right culture in place. A breakdown in the control framework and the integrity of individuals, is when fraud is most likely to be perpetrated.”
For further information please contact: Judith Dow, KPMG Corporate Communications Tel: 0207 694 8584 Email: [email protected] KPMG Press Office: 0207 694 8773