Middle managers now main fraud culprits, claims report

The man who signs your pay cheque is more likely to be robbing you blind than the one who cleans your desk.

That’s the conclusion of an industry report that points the finger of blame over fraud squarely at middle management.

A PricewaterhouseCoopers economic crime study found those in the middle rungs account for 47% of frauds.

“Middle management have now emerged as the main perpetrator of internal frauds,” the report stated. And what’s more the number is rising. In 2007, the same managers only accounted for 32%.

Tony Parton, UK corporate investigation leader at PwC, surveyed 3,037 people from 44 countries for the study. There were several reasons that middle managers come up as the main culprits.

“Here’s a group of people who are probably feeling the pinch more than others,” he said. “There are a fair few of them who overcommitted themselves a few years ago… are stretched on their private education for their children ­ in other words they have pretty big bills and their income has remained flat or in some cases gone down.”

The report also suggests fraud is more common in companies who promote a big-bonus culture, with senior executives handed large sums of money for performance.

The data suggests this promotes an ideology of resentment by employees lower down the pecking order.

“Fraudsters look above them and see someone working no harder than them and similar hours (but receiving) significant bonuses and this is a way of balancing the books on their minds,” Parton said.

“Organisations that have variable pay, particularly those that have high levels of variable pay, are experiencing more levels of fraud generally ­ and that is not just in the accounting fraud area but also, perhaps strangely at first sight, theft and asset appropriation.”

The report found that among organisations with no variable component of compensation, 26% reported fraud in the past 12 months. By contrast, the scale was between 40% and 48% in organisations where the top executives had incentivised payments.

Auditors have already warned about an expected spike in fraud cases as the recession wears on, in part due to an increased scrutiny on cash flow.

In June mid-tier firm BDO said fraud cost the UK £960m in the first six months of 2009. They expected that figure to rise to £3bn by year’s end.

The following month KPMG found fraud had reached its highest level in the 21 years it had been measuring the phenomena.