KPMG: Male Finance Execs Fit the 'Profile of a Fraudster'

Long-serving, male executives are most likely to commit company fraud, according to a new study by KPMG Forensic. In addition, there is a 40 percent chance that the fraudster is from the finance department and a greater than 50 percent chance that he's scheming the company with the help of a colleague.

The analysis, released this week by the United Kingdom division of KPMG Forensic, examines the “fraudster profiles” of 100 of the fraud cases that KPMG has been called in to investigate over the past two years.

“One of the alarming findings from the study was the seniority of the perpetrators,” said Alex Plavsic, national head of fraud investigations at KPMG. “We found that directors or senior managers committed almost two thirds of the 100 cases surveyed.”

Thirty-two percent of the perpetrators had been working for their companies for between 10 and 25 years. And they were not operating alone. In 51 percent of all the cases, two to five parties were involved in the fraud, compared with only one in three cases carried out solely by the perpetrator. The number of people involved in some of the cases (more than five people in ten percent of them) is indicative that fraud can be endemic within some departments and consequently more difficult for outsiders to detect.

In 72 percent of cases, the fraudsters were found to be male-only. Female-only fraudsters were identified in seven percent of cases and both male and females were involved together in some 13 percent of cases. In the remainder of cases, no perpetrator was identified.

The age of the principal fraudster was typically between 36 and 45 (41 percent of cases). Twenty-nine percent of cases involved those aged between 46 and 55. Those aged between 18 to 25 made up only one percent of perpetrators.

The finance department was the most likely business area that the fraudster targeted or was responsible for (40 percent of cases). Procurement was the next most likely area (12.5 percent), while one in ten frauds occurred in the sales area.

The study also examined how the fraud was able to occur and found that the primary reason, in half of the cases surveyed, was a weak control environment. In another 30 percent of the incidents it was the perpetrator abusing their key authorities. Just over one in 10 frauds were achieved by the fraudster operating in alliance with others to circumvent controls.

The most effective detection tool, at 31 percent, was an employee blowing the whistle, an anonymous tip-off, or a report by an external third party. (On the other hand, the survey found that while four in 10 employees were aware of or suspected that a fraud was occurring, they took no action.) Surprisingly, just one in four frauds was detected by a management review.

Personal gain was the most likely reason (41 percent) for committing fraud. External pressures were also a trigger for fraudulent activity with one in eight cases caused by the perpetrator getting into financial difficulties. In nearly 33 percent of the cases the amount stolen was more than £1 million [$1.8 million] while in 26 percent of the cases, it was more than £100,000 [$177,000].

Dismissal of the perpetrator was the most common response with 55 percent of the fraudsters being fired. However, in just under one in five cases no sanction was taken and this may be because of concerns about the reputational impact of fraud becoming known. On a positive note, in a third of cases, businesses had recovered or were taking action to recover cash or assets following a fraud.

Plavsic called the findings “worrying” and said the survey demonstrates the need for companies to continually review their internal controls.

© 2004 SmartPros Ltd. All rights reserved.

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