Don’t be a victim

So, fraud is rising. Are we a more crooked society? Are businesses
dropping their defences? What’s driving it?

Hitesh Patel, director, KPMG Forensic

We are getting better at detecting fraud and there is much more of a
determined focus on dealing with fraud. It now sits at the top of the agenda in
most boardrooms.

There are also market factors. We have a society that is hugely laden with
debt and that creates huge vulnerabilities for corporates. And it is individuals
in pretty senior positions that cause the most damage, largely because they’ve
been there for a long time, they are trusted individuals, they have the
authority, and they’re actually positioned to engineer situations that will
enable them to perpetrate the fraud and then conceal their activities.

In cases we have studied, two thirds were actually perpetrated by senior
management. In terms of age range, half of the criminals were between 36 and 46.
One also needs to consider the environment in which individuals are operating.

Ultimately, there are essentially three drivers for someone to be able to
perpetrate a fraud: there has to be a motivation; there has to be a
rationalisation in their mind that what they’re doing is acceptable; and the
opportunity has to exist.

If those three things exist you’re in a pretty vulnerable situation.

Is the government taking the criminal threat seriously enough?

Felicity Banks, head of business law, ICAEW

The government records on fraud are completely dire. I think a lot of
corporates have had huge problems in trying to report frauds to the police.

The government’s reaction tends to be that this is a civil matter not a
criminal matter: ‘You should go and reclaim the cash from the fraudster, go
away.’ It’s also very, very expensive for police forces. So no, I can’t say that
I’ve had a lot of information out of government.

What I can tell you, though, is that government is changing its attitude to
fraud and is beginning to take it more seriously, possibly because it has
recognised that some of the fraudsters in fact have alliances with organised
crime or terrorists, and so this raises the game for the government in terms of

There is a fraud bill currently going through parliament that will make it
easier to prosecute and give better recognition that fraud is a crime in its own

The government is setting up centres of excellence in the police forces on a
regional basis which should help them to gather the specialists and get the
reporting on a better level. And the Home Office, more generally in its
management structure, is beginning to report more seriously as well.

Identify fraud seems to be flourishing – even auditors have been
affected. How are businesses being targeted?

Alan Norton, head of intelligence, Graydon

The basis of most limited company ratings will be based on information filed
at Companies House.

Fraudsters operate by using the fact that there’s no real validation of
information filed at Companies House to automatically generate credit ratings,
which they can then use to go and obtain goods and services by deception once
they’ve passed the credit check.

Not long ago Companies House put on its website the statement: ‘We accept
that information of companies are given to us in good faith. The fact that
information has been placed on public record should not be taken to indicate
that Companies House has verified or validated it in any way.’ For a public body
that is quite lax, and it should have more processes in place to make sure the
information is correct.

Bearing in mind there’s no validation at Companies House, the fraudsters can
easily hijack a company, change its registered office address and get goods and
services delivered to a new address. Unfortunately some suppliers will forfeit
because their own internal processes aren’t stringent enough. So it does come
back to having to know who you’re trading with, and there are steps that you can
take to help validate that.

Are businesses themselves taking the growing risk seriously enough?

Andrew Conti, assistant director in the fraud investigation service,
Ernst & Young

I think what we’re seeing now is that Sarbanes-Oxley has really raised fraud
up the corporate agenda and whereas before company directors were probably, and
some may argue rightly, concerned about the material statements and the
financial statements, now they see that fraud is a reputational issue and
therefore must be combated at all costs.

What we’re also seeing is that properly constituted audit committees are
being set up with a mandate to look at fraud and to investigate it when it
Whistleblowing policies are becoming increasingly effective and when a firm like
KPMG or Ernst & Young is engaged, we’re very much involved in the fraud
cycle, so
in a number of respects we can actually prevent or at least moderate the actual
loss to the company because we’re involved much sooner.

So there are many positive signs. But fraud is evolving very, very quickly
and increasingly fraudsters are developing new technologies, new ways of
committing their crimes and it’s just very difficult for the police or other
authorities who are, at the end of the day, constrained by the funds that
they’ve received to cover all these areas.

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