Fraud on the rise as economy takes a tumble, KPMG fraud barometer reveals

Business fraud has been on the rise in the past six months as economic uncertainty takes hold, according to the latest figures from the KPMG Fraud Barometer, which shows the average value of each fraud case over the past three years has reached $1.8 million.

The barometer, which has been running since 2008, once again confirmed the most common fraudster as a male and in middle management, with the most common types of fraud categorised as accounting, followed by fraudulent loans and investment scams.

“We’ve looked at the past four years, and there’s been quite a big rise in the six months to December,” KPMG head of forensic accounting Gary Gill told SmartCompany this morning.

“We’re seeing a correlation with economic uncertainty and recent fraud.”

But Gill also says the higher cases of fraud could also possibly be tied to some cases where companies have laid off staff.

“When people lay off others, they think about the costs they can save, but they don’t think about the controls. So, suddenly, you’ve got one person doing two jobs, or three, and then suddenly one person can initiate a transaction, or approve something.”

“They don’t have detection processes in place that were there before.”

The barometer profiles the number of frauds occurring over a number of industries, all worth more than $100,000. To be counted, the perpetrators must have been at least charged with a fraud-related offence.

Since December 2009, when fraud was at its highest, crime had fallen until the past six months, when it rose again to over 60 cases of fraud, from just under 50 in the six months to June 2011.

The past four years, however, reveal some sobering statistics. Queensland is suffering the highest number of cases of fraud per capita, with 30% more large frauds than Victoria and almost the same number as New South Wales despite it having three million fewer people.

Queensland had 151 cases of fraud from 2008 to 2011, while New South Wales had 153. The value of these frauds perpetrated in Queensland came to $208 million, with an average of $1.3 million.

“It’s hard to say the cause of this,” Gill says. “I think people head up there for retirement, and they may be a bit of a soft target.”

“We’ve seen a lot of investment scams there and identities can be compromised and stolen.”

However, commercial businesses are still the biggest victims, followed by financial institutions. Half of the large frauds against institutions took place in New South Wales, but it’s commercial businesses that are at the most risk – and the construction and resource industries are the most susceptible.

Once again, managers are the most likely to commit fraud, with 80% of cases categorised as inside jobs. In contrast, most frauds against financial institutions come from the outside.

“Over the four years we have been compiling the Fraud Barometer, there has been little difference in the number of frauds perpetrated by managers as opposed to those involving other staff, but management frauds usually expose the victim organisation to substantially higher losses,” the report said.

Gambling is also a key motivator for fraud, with 80% of gambling-related cases occurring in Victoria and Queensland, while 43% of gambling-related frauds took the form of accounting frauds against commercial businesses.

The average length of time committed to detect all frauds committed by employees and managers has been getting longer, while the average size of frauds involving identity theft also continues to increase.

Gill says although it has been said many times before, businesses still need to ensure they’re putting proper controls – making sure more than one person has access to accounts, checks and balances are in place for all transactions, and a hotline is set up so people can turn in information if they come across fraud.

“It always comes down to these sorts of things, it’s always a control issue that you can detect or prevent if you do the right thing.”

“People are motivated for different reasons. You just need to have those controls in place.”