KPMG Survey: A Typical Corporate Fraudster Is...

KPMG recently released its 2011 Who Is A Typical Fraudster? report, describing the profile of a typical corporate fraudster, the impacts and amounts stolen, industries where fraud tends to concentrate, and the conditions which enabled the fraud. The report included 348 events in 69 countries. The fraud events included "white collar" crimes such as:

"... misstatement of financial results, theft of cash and/or other assets, abuses of expenses, and a range of other fraudulent acts."

The report excludes acts of no material value and misconduct.The report does not mention names. The average duration of the fraud was almost three and a half years from the start until its detection. In 74% of the incidents, fraudsters exploited weak internal controls. Companies fail to read and act quickly on the warning signs:

"The number of fraud cases preceded by a red flag rose to 56 percent of cases in 2011, from 45 percent in 2007... Just 6 percent of initial red flags were acted on in the 2011 analysis... Rarely is an act of fraud a one-off... In 2007, 91 percent of fraudsters were repeatedly fraudulent, compared with 96 percent in the 2011 analysis."

The average loss was $1.4 million in Asia Pacific, $1.1 million in the Americas, and $900k in Europe. The report described the following as one of the most interesting cases in the United States:

"At a U.S. financial institution, a larger-than-life chief executive surrounded himself with an inner circle of "yes men." The fraud, which involved subterfuge and complex bundling and unbundling of loans and transactions to make bad loans appear good... The investigation quickly uncovered conflicting stories told by the CEO's inner circle and the people working with the loans and customers. This case illustrates, in particular, how dominant and bullying behavior can coerce others to participate in fraudulent activity."

The corporate fraud includes identity theft. A case from Switzerland:

"Fraudsters attempt to extract money from dormant accounts or they assume the identity of a customer to trick advisers into making payments or transfers. Often this involves the collusion of an external party with an internal ally..."

I also found the consequences interesting:

• Disciplinary action: 40% of cases (54% in the Americas; 23% in Asia Pacific)
• Regulatory, legal enforcement: in 45% of cases
• Civil recovery: 23% of cases
• Resignation/voluntary retirement: 17% of cases (25% in Asia Pacific)
• Out-of-court settlement: 6% of cases
• No action taken: 3% of cases

The profile of a typical corporate fraudster:

• Male (87% were men)
• 36 to 45 years of age (41% were ages 36 to 45; 33% were ages 45 to 55)
• Committed the fraud against his own employer (90% committed the fraud against their employer)
• Works in the finance function or in a finance-related role (32% worked in finance; 26% were CEOs; 25% were in operations/sales)
• Holds a senior management position (29% were in management; 53% were in senior management)
• Employed by the company for more than 10 years (33% employed more than 10 years; 29% employed 3 to 5 years; 26% employed 6 to 10 years)
• Committed the fraud in collusion with another employee (61% acted with others)

The report mentioned this about collusion:

"... male perpetrators (64%) are almost twice as likely to collude than women (33%). After taking account of male dominance in the perpetrator group, collusive females account for just 4 percent of activity. Perpetrator groups are most typically all-male or mixed gender."

KPMG is a tax, auditing, and advisory firm operating in 144 countries. A KPMG auditor caused a data breach in May 2010 when the auditor lost a flash drive containing 4,500 unencrypted patients records.

Comments

[Kevin Porter]

The percentages are pretty impressive stats. When they get the power looks like they abuse it.