24 June 2011

KPMG’s  latest international fraud survey indicates that finance directors, chief executives and other senior management are far more likely to be involved in fraud – including theft and expense abuse – than junior staff. Trends suggests that the typical fraudster is a senior male manager, aged 36 to 45, who has worked for his company for more than a decade. Most likely motivated greed, he will exploit poor internal controls and a weak corporate concern for ethical behaviour.

Most have a finance role (32%), where there is opportunity to commit and conceal fraud. Although the number of chief executives acting fraudulently has dropped since 2007, people working in a chief executive’s or managing director’s office represent 26% of frauds and 25% is committed by staff in operations and sales.

The economic downturn has also made it a lot easier to commit fraud, according to KPMG. It now takes longer to detect fraud – up from an average 2.9 years from inception to detection in 2007, to 3.4 years in the 2011 analysis. In western Europe or north America, “just” 3% of fraud goes undetected for 10 years or more.

The research is based on investigations conducted by KPMG member firms in 69 countries.

Compared with the 2007 survey, more fraud (13%) is now discovered by chance, although there are more anonymous tip-offs which led to uncovering 14% of cases.  Formal whistleblower systems contribute to 10% of fraud detections.

The most effective remedy is for organisations to actively promote standards of integrity.  The New South Wales ICAC this week  reported on the corrupt behaviour of a local authority planning officer who gave favours to business owners in return for cash, gifts, free meals, and free massages and sexual services. This reflected poor systems and little focus on ethical expectations- and a policy of allowing staff to accepts gifts, benefits and hospitality.  There are echoes of this situation in a media report this week of hospitality given to ACC  officials with responsibility for managing relationships with providers.

In the New Zealand State Services, agencies are expected to give effect to the “6 trust elements”

  • Having standards
  • Promoting those standards –“talking the talk”
  • Integrating those standards into operations – “the way we do things around here”
  • Managers modelling those standards -“walking the talk”
  • Staff knowing there are consequences for misconduct
  • Agencies taking decisive action if breaches occur

www.guardian.co.uk/uk/2011/jun/20/fraud-senior-management-kpmg-report

www.icac.nsw.gov.au/investigations/past-investigations/article/3883

www.stuff.co.nz/timaru-herald/news/5165012/ACC-staff-broke-rules-over-perks

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