KPMG

Culprits are predominantly employees colluding with others, KPMG reveals

A report by KPMG has revealed that culprits are predominantly employees colluding with others outside the organisation.

According to the study — entitled Profile of a Fraudster — those who commit fraud are most commonly employed by the victim organisation (61 per cent) posing as something of a ‘Trojan horse’. In 70 per cent of frauds, the perpetrator found it tough to go solo and colluded with others. Of these, 44 per cent took their time before committing a fraudulent act, having been employed for more than six years by the victim organisation.

Characteristics of the typical swindler:

  • 36–45 years of age (with 70 per cent of fraudsters between the ages of 36 and 55)
  • Employed in an executive, finance, operations or sales/marketing function
  • Holds a managerial or executive position (25 and 29 per cent respectively)
  • Employed in the organisation for more than six years

The report also revealed that the three drivers of fraud — motivation, opportunity and rationale — continue to be timeless themes. Capability, however, continually changes, causing the profile of the fraudster to alter too.

One major change is the growing use of technology by fraudsters, and not just in the technologically advanced countries, such as the US.

The study found that more than half (54 per cent) of the frauds were facilitated by weak internal controls. This suggests that if many organisations tightened controls and the supervision of employees, the opportunity for fraud would be curtailed.

But strong internal controls will not prevent all fraud. For 20 per cent of the fraudsters the fraud was committed recklessly, regardless of the controls, while for 11 per cent fraudsters colluded to circumvent the controls.

Other key findings:

  • The overwhelming reason for committing fraud is financial. Out of a total of 1,082 motivations listed, 614 were motives of greed, financial gain and financial difficulty and a further 114 were related to business targets. The only non-financial motive that comes close is sheer eagerness, at 106.
  • A third of the fraudsters (36 per cent) indicated that a sense of superiority was their rationale for their fraud. This may be linked to the fact that 29 per cent of the frauds were committed by executive directors, the largest single job title.
  • The most prevalent fraud is misappropriation of assets (56 per cent), of which embezzlement comprises 40 per cent and procurement fraud makes up 27 per cent. The second most prevalent fraud is revenue of assets gained by fraudulent or illegal acts (24 per cent).
  • When acting in collaboration, 71 per cent of frauds were perpetrated over one to five years. With regard to value, 18 per cent of frauds had a total value of between $50,000 and $200,000.

The KPMG study showed that, to a large extent, culture influences our actions and determines what we consider ethical and compliant behaviour.

At the global level, there were elements of bribery and corruption in one third of the frauds (33 per cent). This compares with the US (24 per cent), China (48 per cent), CIS (64 per cent) and West Africa (67 per cent).

Fraudsters in Canada, more than in other countries, try to avoid the risks of having an accomplice.

Fifty per cent of the investigated cases in the US occurred in a highly regulated environment, compared with 50 per cent in China, 33 per cent in CIS and none in West Africa.

There were more people committing fraud after working for the victim organisation for only one to four years in the UK, Canada, the Czech Republic and India than in South Africa and Germany.

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