Companies failing to leverage technology to combat fraud, despite it being a significant enabler for fraudulent activity

Phil Ostwalt, Global Head of Investigations at KPMG.

Global Profiles of the Fraudster also reveals majority of fraud continues to be due to weak internal controls.

According to a new report by KPMG, technology was found to be a significant enabler for a quarter (24 percent) of the 750 fraudsters investigated by forensic specialists across 81 countries. By contrast, the Global Profiles of the Fraudster report reveals that not enough proactive analytics are utilised in detecting fraud, with only three percent of the fraudsters being detected in this manner. 

“The double edged sword of technology in fraud is only going to get sharper” said Phil Ostwalt, Global Head of Investigations at KPMG: “As technology becomes more advanced, so too do the schemes to use it maliciously. And while it’s clear that fraudsters are all too comfortable making use of technology to perpetrate a fraud, we are seeing little evidence that companies are doing the same to prevent it. Threat-monitoring systems and data analytics are a must have for organisations on the look-out for anomalous or suspicious behaviour.”

Tech-savvy fraudsters are using technology in a variety of ways to perpetrate frauds. In these instances where fraudsters are using technology, about 24 percent entailed the creation of false or misleading information in accounting records, 20 percent involved fraudsters providing false or misleading information via email or another messaging platform and 13 percent involved perpetrators abusing permissible access to computer systems.

“In South Africa we see some similar trends in general, indicating that the attributes of fraudsters are somewhat universal, even though the face of the fraudster is ever changing and some country or region specific drivers do lead to slight differences,” says Nosisa Fubu, Partner at KPMG Forensic in South Africa.

The new face of fraud

• Between the ages of 36 and 55 (69 percent of fraudsters investigated) (SA - 70)
• Are a threat from within (65 percent are employed by the company) (SA - 58)
• Could very well be executives or director level (35 percent) (SA - 9), who have been with the company for at least six years (38 percent) (SA - 15). For SA, management (no executive capacity) is highest at 46 percent followed by staff member at 21 percent.
• Have unlimited authority in their company and are able to override controls (44 percent of fraudsters investigated) (SA - 61).
• Fraudsters are most frequently described as autocratic (18 percent) (SA - 18) and are three times as likely to be regarded as friendly as not. (five times as likely to be regarded as friendly as not)
• Are likely esteemed, with 38 (SA - 33) percent of fraudsters describing themselves as well-respected in their organisation.
• Likely to have colluded with others (62 (SA - 73) percent of frauds, down just slightly from 70 percent (SA - 92) in the 2013 survey).
• While personal gain was the predominant overriding motivation for fraudster (60 percent) (SA - 58), greed was the second most common factor at 36 (SA - 49) percent and the sense of ‘because I can’ was third at 27(SA - 33) percent.

Opportunistic fraud a growing concern

Weak internal controls were a factor for 61 (SA - 30) percent (SA – Reckless dishonesty regardless of controls was the greatest factor at 42 percent) of fraudsters and the problem appears to be growing.

The number of fraudsters who were able to commit their acts as a result of taking advantage of weak controls rose to 27 percent, from 18 percent in the 2013 report. These stats actually refer to: the number of fraudsters whose overriding motivation to commit their acts “because they could” rose to 27 percent (SA – 33), from 18 percent (SA – 16) in the 2013 report.

Even if controls are strong, fraudsters can and do evade them or override them. Colluders were able to circumvent strong controls in 11 (SA -18) percent of the cases and an additional 21 (SA – 42) percent recklessly defrauded with no regard for the controls.

Other key findings

• Fraud is more frequently perpetrated in collusion with others than alone (62 percent (SA -73) against 38 percent (SA – 27) respectively).
• While most collusion happens in mixed company (46 percent) (SA – 71), men still tend to collude more than women do (39 percent (SA -21) of colluders are groups of men vs. 7percent (SA – 8) of colluders are groups of women).
• External parties are involved in 61 percent (SA – 67) of the instances where the fraudster is colluding.
• 44 percent (SA – 52) of fraudsters were detected as a result of a tip or a complaint; a further 22 percent (SA – 27) were detected as a result of a management review.

“Globalisation and regulation are just a few of the megatrends for why controls are more important than ever in business today,” said Ostwalt.

To view additional information about the Study, please visit kpmg.com/fraudster. You can also follow the conversation @KPMG_SA on Twitter.