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Senior managers ‘committing more workplace fraud’

Warning signs being missed or ignored; research finds.

Senior managers are increasingly committing fraud as ‘red flag’ warning signs are “missed and ignored”, research from KPMG has revealed.

Company bosses were the culprits of nearly a fifth of workplace frauds (18 per cent) compared to 11 per cent in 2007, according to analysis of 348 white collar crimes between January 2008 and December 2010 across 69 countries.

Criminal activity among managing directors and chief executives had increased much more sharply to 26 per cent over the four year period from 2007 to 2011, the research showed.

Richard Powell, KPMG’s EMA forensic investigations network lead, said previous research has shown that corporate fraudsters are typically male and aged between 36 and 45 years old, with 41 per cent falling into this category.

“What has remained ‘unknown’ until now, is the extent to which the temptation to commit fraud has infiltrated both the board and executive management across the globe,” Powell said.

The report ‘Who is the typical fraudster?’ found that often fraudsters will work in finance (32 per cent), and have more than 10 years experience. Over half (53 per cent) work either in a senior management role or a board role.

Long-serving senior employees are in a better position to override checks and controls and have built up personal trust, while the research showed that this group is “most prone” to committing embezzlement and/or procurement fraud. These crimes together accounted for just over 50 per cent of the 348 cases examined.

“In the UK, the survey showed an even higher proportion of fraudsters who had worked for their employer for more than 10 years (57 per cent), with 50 per cent in senior management or board roles,” Powell added.

The research said that ‘red flag’ warnings – such as an employee who rarely takes holidays, leads an excessive lifestyle or is secretive or unwilling to provide requested information – are being missed or ignored by companies, particularly since the start of the credit crunch.

In 2011, 56 per cent of frauds had exhibited one or more prior red flags, but only 10 per cent of those had been acted upon. This compares to 2007 when 45 per cent of frauds had shown one or more prior red flags and of those just over half had been acted upon.

Powell said: “It is important that internal auditors and others know how to recognise a red flag and how to respond, and that there is a culture which encourages reporting of matters of potential concern.”

Good management review procedures coupled with data analytics techniques can be used to identify suspicious activity. In the UK, management review led to detection of only 22 per cent of the UK frauds in the survey, although globally it was even lower at 16 per cent.

Whistleblower reports and anonymous tip-offs accounted for 24 per cent of detected frauds (34 per cent in the UK), whilst a further 8 per cent (6 per cent in the UK) were identified due to customer or supplier complaints and 6 percent (11 per cent in the UK) due to issues raised by third parties such as banks, tax authorities and regulators.

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