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Culture the key to preventing company fraud


Changing company culture by introducing ethics and integrity measures at top management level is the best way to prevent fraud, according to KPMG Forensic.

According to its international study, the typical company fraudster is a trusted male executive who gets away with over 20 fraudulent acts over a period of five years.

The study looked at 360 actual company fraud cases investigated by the forensic departments of KPMG firms in Europe, the Middle East and Africa over recent years.

Regardless of geographical region, the patterns are remarkably similar:

  • 85 per cent of company fraudsters are male

  • The typical fraudster is in the 36-55 age bracket

  • By the time he starts enriching himself by illegal means, he has usually been employed by the company for at least six years

  • He typically works in the finance department and commits the fraud single-handed

  • In 86 per cent of cases he is at management level, in 66 per cent of cases a member of senior management

  • Greed and opportunity are his motivating factors.

The typical fraudster commits multiple offences, with 51 per cent committing 20 or more frauds and a third more than 50. Two-thirds commit frauds for between one and five years and nearly ten per cent get away with it for more than six years.

With the total loss caused per fraudster being more than €1 million (£678,000) in 42 per cent of cases, the financial toll can be significant.

Richard Powell, partner at KPMG Forensic in the UK, said: “Companies clearly have a challenge on their hands. Over 60 per cent 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.

“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. 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.”

In 49 per cent of cases weak internal controls are the most usual enabler of fraud and cases are most commonly discovered through staff ‘whistleblowing’ (25 per cent) and management reviews (21 per cent).

But most company fraud is dealt with behind closed doors, with two-thirds of companies issuing either no information or incomplete information about the incident. Employees, authorities and the media are rarely informed due to fears of image loss.

Consequently, offences only occasionally undergo criminal investigation. Mostly, independent investigations are carried out without the police or the public authorities being informed. As a result, most affected organisations bear the loss themselves.

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