Director involvement in fraud climbs

COMPANY bosses are committing an increasing proportion of frauds, with the volume of cases involving senior management increasing to a fifth of all cases.

Globally it was board members who perpetrated fraud in 18% of the cases surveyed, an increase from 11% from 2007, a KPMG report reveals.

“Who is a typical fraudster?” reviewed a sample of 348 white collar crime cases investigated between January 2008 and December 2010, covering 69 countries.

It was found that the typical fraudster was male, aged 36-45 and had worked for the company for more than ten years.

Richard Powell, one of the authors, also commented that “In the UK, the survey showed an even higher proportion of fraudsters who had worked for their employer for more than 10 years (57%), with 50% in senior management or board roles.”

The report comes against a backdrop of a number of massive frauds coming to light over the past few years committed by company heads, such as the Stanford and Madoff cases.

The report comes against a backdrop of a number of massive frauds coming to light over the past few years committed by company heads, such as the Stanford and Madoff cases.

The research illuminates an area which is often invisible to shareholders, with 77% of the cases sampled in the report having never reached the public domain.

In EMA the average loss per case in 2011 was $900,000 (£555,672) with cases typically taking 3.7 years to detect.

Examples of fraud included bribes, misstatement of financial results and false billings by a supplier to fund kick backs to a senior employee.

For those frauds that were detected in Western Europe, disciplinary action was taken in 41% of cases, enforcement action (including regulatory, legal and police action) in 42%, civil recovery in 26% and resignation/voluntary redundancy in 13% of cases.

The report also highlights weaknesses in companies’ attempts to detect fraud. It notes that the so-called “red-flags” which indicate fraud (such as an employee who rarely takes holiday or who appears to be living beyond their means) were routinely being ignored.