Mid-size companies ignore finance department fraud

Fraud is flourishing in medium-sized businesses, but companies are failing to
recognise its most likely source – the finance department.

Just 5% of respondents to KPMG’s quarterly survey of middle market businesses
(those with a turnover of between £5m and £500m) listed accounting manipulations
and processing fake invoices as a growing problem for them.

But analysis by KPMG Forensic last year showed that the finance department is
the most likely business area for fraudsters to work in or be responsible for
(42 per cent of cases).

According to the Big Four firm’s research, only a quarter of companies have a
fraud response plan and two-thirds of businesses don’t have a dedicated policy
on fraud of any kind.

Hitesh Patel, director of fraud investigations at KPMG Forensic said: ‘What
is surprising from these results is that so few respondents listed fraud from
the finance department as a problem. In the smaller business where dividing
roles among people to act as a control is not as easy, it is essential to have
robust controls on the finances of a business – this is often a key target area
for a fraudster.’

He said that many middle market companies still don’t have sufficiently
effective systems and controls to help prevent fraud from occurring, partly
because they are subject to less stringent regulations, and partly because the
owners who often manage the business believe that they have a ‘finger on the
pulse’ of the organisation.

‘These factors play into the hands of the fraudsters, many of whom are long
standing trusted employees in a position of authority who can engineer weak
systems that they can exploit,’ said Patel.

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