The Hindu Business Line : Fraud becoming a team sport

A BIG-FOUR accounting firm, KPMG, has unearthed some shocking things about company fraud: Seven out of 10 fraudsters are men, 40 per cent of fraud involves the finance department employees, over half the fraud involves two to five people and the typical culprit is a long-serving male executive in the age group of 36 to 45.

These are only some of the findings of the firm's forensic and litigation service, after it examined a 100 fraud cases investigated over the past two years. "One of the alarming findings from the study was the seniority of the perpetrators." Directors or senior managers committed almost two-thirds of the 100 cases surveyed, notes the firm.

However, if you go around asking businesses, they may not respond with ready answers because quiet's the word when it comes to fraud, else there could be "a devastating effect on a business, both from a financial and reputational perspective." Only 6 per cent of the cases were publicised. Fraud makes great news for readers, not for the affected company.

It appears from the results of the exercise that frauds have become team sports, because in almost one in two cases, there were up to five players. Lone rangers are a minority. "In one case analysed, 207 individuals were involved in a single fraud," and you may call it a fraud carnival. When the perpetrating group is from the same department, secrets become tough to detect. That should be accounting for the notoriety of the finance department. Next was the `procurement' department, followed by `sales.'

Loyalty does not build with years, as is usually thought, because KPMG's profile finds a perfect match in one out of three cases where employees have been working in the company for between 10 and 25 years.

Women are not as evil as they are made out to be because the study found female-only fraudsters only in 7 per cent of cases. Also, in fraud business surveyed, men and women didn't make too good a pair, because "both male and females were involved together in some 13 per cent of cases." The young may be foolish but not fraudulent because "those aged between 18 to 25 made up only 1 per cent of perpetrators."

What factors are conducive to fraud? The most important is a weak control environment. Too much authority also can be abused, as in one in three incidents. Controls may be there, but if they can be circumvented, a fraudster can take advantage of such weakness.

Okay, when does a fraud come to light? Don't say `auditors' because they would readily wash their hands off saying that their job is not to detect frauds. Does management review help? Yes, but only in 25 per cent of the cases. Almost one in three frauds got exposed "following an employee blowing the whistle, an anonymous tip-off or a report by an external third party." Sadly though, four in 10 employees were aware of or suspected that a fraud was occurring, but they took no action.

It is long known that transfers and job rotations can help reduce fraud instances. Since the findings show that groups are involved in looting and then sharing the spoils, employers need to bust possible cliques within the organisation. Also, since whistle-blowing needs courage, there have to be secure channels of communication for employees to access. And, to be fair, not all long-serving male executives aged between 36 and 45 are cheats.

SayCheek@TheHindu.co.in

More Stories on : Economic Offences | Say Cheek

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Glamour & Glitter

Fraud becoming a team sport

The other side of one-side