Survey shows value of average fraud case doubles to $3 million, companies take more than a year to detect cases

The value of frauds committed by employees has doubled during the past two years with the average case now costing victims $3 million, according to the latest KPMG Fraud and Misconduct Survey 2010.

The figure has been inflated due to employees turning to fraud to get through the global financial crisis, according to KPMG. The total amount of money lifted from organisations came to $345 million, an increase from $301 million in 2008, with a total number of 174,914 cases.

Fraud is also becoming more widespread, with 50% of private entities recording at least one case of fraud.

“When we did the last survey, it was just at the start of the global financial crisis,” KPMG Forensic partner-in-charge Gary Gill says.

“However, we weren’t shocked that we’ve seen more fraud happening during the crisis, people are under pressure and it happens.”

The survey tracks fraud and misconduct affecting 200 respondents in Australia and New Zealand. It found the average cost came to $3 million, and that the financial and insurance sectors were the most affected.

“I don’t think that result is surprising, to be honest. That’s where the money is, in banks, and other types of financial institutions,” he says.

“It’s also people from outside the business, so you’ve got organised crime, people taking out huge amounts of money and not repaying it, and so on.”

The survey found that in 61% of cases, there was no recovery of cash stolen, and that the average time to detect major fraud has increased from 342 days to 399 days.

However, it also confirms the traditional profile of the average fraudster: a 38-year old male, who has been with a business for several years and holds a management position.

“The number one reason for fraud is greed and lifestyle issues. So during the past two years people have been under financial pressure, and it’s fair to say they’ve been feeling the pinch. Aspirations grow and they want new toys.”

“And that profile has remained the same. So you have males in typically management positions, who have access to controls that many other employees cannot reach.”

Gill says this is exactly the type of situation which breeds fraud. Managers are given too many controls with too little oversight, and when a fraud occurs businesses simply don’t have the processes to determine when and where the leak happened.

He also warns early signs of fraud can be mistaken for a hard-working employee, including staying back late and coming in early.

“A breakdown in internal controls is enabling employees to make off with the funds. So often KPMG’s investigations expose simple methods used to fleece large amounts of money from organisations that could have been prevented or detected with the right controls.”

The survey also warns SMEs need to remain vigilant in catching thieves by opening dedicated whistle blower hotlines and introducing new security techniques, like multiple checks and passwords for accessing online accounts.

Missing oversights can include a lack of security checks for managing online banking procedures, accessing funds or even the payroll – many fraudsters create ghost employees who then start receiving payments.

The survey pinpoints a whistle-blower’s hotline as one tactic used by several businesses to reduce fraud.

“The survey shows us that about 20% of frauds were picked up through whistle blowers. I think that tells you it makes sense to have some type of hotline in your business. It definitely has an impact.”

“But then there are other methods as well. Data analysis, using electronic information to try and identify fraud proactively, and matching information from one system to another. Looking for inconsistencies. If you simply put in oversight, you’ll find that many of these cases can be found.”