By Max Clarke

Company bosses are responsible for an increase in fraud across the globe.

This is according to a survey by KPMG that found that board members at divisional, subsidiary and corporate level, commit nearly one fifth of fraud — an increase from 11 per cent in 2007 — to 18 percent in 2011. Of the various board roles, those in CEO or MD’s offices account for an increase in committed fraud from just 11 percent in 2007 to 26 percent across the four-year period.

“While our research has shown that corporate fraudsters are typically male, 36 to 45 years old (41 percent) and often commit fraud against their own employer, what has remained ‘unknown’ until now, is the extent to which the temptation to commit fraud has infiltrated both the board and executive management across the globe,” commented Richard Powell, KPMG’s EMA forensic investigations network lead.

Often long-serving and more senior employees will be better able to override controls and have accumulated a good deal of personal trust, so will be less suspected, and they are most prone to committing embezzlement and/or procurement fraud (these account in aggregate for just over 50 percent of the 348 cases). Examples include false billings by a supplier to fund kick backs to a senior employee; employees accepting bribes from a contractor in exchange for signing off inflated project costs; and supplier collusion with victim company employees leading to overbilling.

While frauds are typically quite simple in concept, they can often involve quite complex means of concealment. Frequently the use of good management review procedures, sometimes coupled with data analytics techniques can help identify potential anomalous transactions or suspicious activity. In the UK, management review led to detection of only 22 percent of the UK frauds in the survey — globally it was even lower at 16 percent.

Richard Powell concludes: "Given the findings from our survey of red flags not being followed up, coupled with increased recessionary pressures, and the impact of the credit crunch, it seems probable there will be a marked increase in the number of as yet undetected fraud cases which will surface over the next couple of years. If the trends in our survey continue then many of these cases will continue to throw out red flags in the intervening period. While many fraudsters are now using more sophisticated technology to commit and hide their crimes, often the underlying fraud remains quite simple in its execution.

“The challenge is how to see through the ‘ordinary’ disguise of the fraudster; close the gaps in the corporate armour; enhance fraud prevention and detection; and, spot and respond more often and more rapidly to red flags.”


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