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Corporate frauds are perpetrated more in groups

dubai - Male fraudsters tend to collude more than women do, reveals KPMG survey

Weak internal controls fuel most corporate frauds that are almost twice as likely to be perpetrated in groups as in solitude, KPMG's survey of 750 fraudsters worldwide found.

"This is partly because fraudsters need to collude to circumvent controls. So collusion is especially threatening for a company. Larger groups [say, five or more people] tend to do more harm financially than single fraudsters or small groups," KPMG said in a report.

According to the survey, male fraudsters tend to collude more than women do. "They outnumber women almost five to one in the survey, though the proportion of women has risen since 2010."

While male fraudsters also tend to be more senior than women in the organisation, groups of fraudsters very often comprise people both inside and outside the company, found the survey.

"Managing the risk of fraud has grown more complex as companies face an escalating threat of cyber fraud and no let-up in the more traditional forms of wrongdoing, such as the falsification of books and records," said the report.

"In response, many companies have set up strong internal controls to prevent, detect and respond to fraud. But this is far from universal, as our survey shows that weak internal controls were a factor for 61 per cent of fraudsters [72 per cent in Europe]," it said.

The survey found that fraud is less likely to occur in companies where there are robust internal controls and monitoring.

"Internal controls are weak when they are poorly designed and are not followed by employees. A thorough fraud risk assessment is likely to show where the gaps are," said Lem Chin Kok, head of KPMG Forensic, KPMG in Singapore.

"Anti-fraud controls such as internal audit, suspicious managers and co-workers and anti-fraud processes are not strong enough, and the problem is growing," said the survey, which found that weak internal controls were a contributing factor in no less than three quarters of them.

There was a sizeable jump in the proportion of fraudsters who saw an opportunity that presented itself due to weak controls, compared with the previous survey in 2013. "Even if controls are strong, fraudsters evade them or override them," it said.

Different forms of detection come into play. These include whistle blowers, other kinds of tip-off mechanisms and suspicious customers and vendors, especially to check executives with too much power.

"Sixty-one per cent of colluders are either not employees of the company or are employees who work with people who aren't. Some of them are former employees. This highlights the need for better third-party due diligence of such persons as vendors and customers," KPMG argued.

Technology helps both the fraudster and the company combating fraud. Almost a quarter of fraudsters rely on technology. Companies, by contrast, could do a great deal more to use technology as a tool to prevent, detect and respond to wrongdoing.

The key anti-fraud technology is data analytics, a tool that can sift through millions of transactions, looking for suspicious items. But only three per cent used pro-active anti-fraud data analytics in detection of the fraudsters surveyed.

Cyber fraud, an important form of technology-based fraud, is emerging as a growing threat and many companies are aware of the issue but seem to be doing little about it, KPMG said.

- issacjohn@khaleejtimes.com