Identifying the fraudster

The 10th principle of the Global Compact states “Businesses should work against corruption in all its forms, including extortion and bribery.” But hand in hand with corruption comes fraud. In the so-called developed world we might have been able to reduce corrupt behavior to a large extend but instead we have given room for white-collar crime or fraud.

According to a resent survey done by KPMG there are able reason why business should be extra alert but also that there are tell-tale signs that are not being heard and followed by organisations.

“It is surprising that companies continue to ignore warning signs, particularly in light of the recession. While cost-cutting initiatives associated with the downturn may have played their part in the observed shift, such cuts may prove a false economy. While defenses are down, the fraudster sees the opportunity to capitalize. The need for companies to be vigilant has never seemed more important.”

So who is these fraudsters and how do one spot some of the characteristics of a fraud being committed.

He does typically not work alone. In most cases (61%) he (and yes it is a he) works with others in-order to do his crime. The fraudster can either work with internal parties or external contractors.

The fraudster is a male between the ages of 36 and 45 years, who works in the finance function or finance related role. The unique organizational position grants him access and knowledge about the internal controls and especially where the governance structure is weak and can be exploited.

He has been with the company for more than 10 years, and holds a senior management position. Such individuals will be better able to override controls and may have accumulated a good deal of personal trust enabling him to manipulate key organisational members in order to do his crime.

Evija Miezite, Associate Director, KPMG Baltics SIA, leader of forensic projects in Latvia, notes that “According to the survey, the typical fraudster most commonly works in the procurement or sales function. The finance function often plays the role of ‘policing’ these functions. We also note that in Eastern Europe, some 89 per cent of persons investigated, had been employed at the company for more than 3 years (of which more than half had been employed for longer than 6 years) and 52 per cent of the frauds had run for more than 3 years before they were detected.”

Another major problem is that organisations are very reluctant to communicate about the fraud being committed meaning that the perpetrator in practice can “shop” around in other organisations committing the same crime again and again.

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