Fraud study focuses on danger from within

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Even as the trucking industry continues to battle back against a shift in cargo theft strategies, a new report is also divining a change where the broader issue of corporate fraud is concerned – and it’s certainly not a good trend that’s taking shape by any means.

The new report by global consulting firm KPMG International reveals that people who commit fraud are typically experienced employees in a position colluding with others inside and outside their organization; people usually holding managerial or senior executive positions who also typically don’t have a prior history of criminal activity.

Phil Ostwalt, global coordinator for investigations for the global forensic practice at KPMG and investigations leader for the firm in the U.S., noted that today’s “fraudster” tends to be highly respected and appears trustworthy, with 61% employed by the victim organization and posing as something of a Trojan horse.

"The intriguing thing about fraud is that it is always morphing, like a strain of flu; you can cure today's strain, but next year it evolves into something as bad if not worse," Ostwalt added, pointing out that KPMG’s research also revealed that many fraudsters are not being held accountable for their crimes, with only 35%t facing criminal or civil litigation, with only 7% actually facing jail time and 55% being dismissed from their jobs.

"It is alarming that some fraudsters keep their jobs and don't face more severe penalties,” he said. “Companies need to set a tone of no tolerance for fraud or any other type of misconduct. By taking the fraudster to task for their actions, the company will deter others from misbehaving."

KPMG’s report – dubbed Profiles of a Fraudster – also found that collusion, or working with others to commit fraud, appears to be a growing trend with the proportion of cases involving collusion increasing from 61% in KPMG's 2011 survey to 70% in 2013.

For edification purposes, the firm said that it gathered data for this study from fraud investigations conducted by forensic specialists in Europe, Middle East and Africa (EMA), the Americas, and Asia-Pacific between August 2011 and February 2013. 

KPMG analyzed a total of 596 fraudsters who were involved in acts committed in 78 countries, examining "white collar" crime investigations conducted across the regions where the perpetrator was known and detailed contextual information on the crime available. 

The firm’s research additionally revealed that fraud usually occurs over a long period of time, with 93% of frauds committed in multiple transactions, with 72% of such crimes perpetrated over a one to five year period.

Richard Girgenti, KPMG's U.S. service line leader for forensics, added that a special section of the report underscores the challenges businesses face due to the growing use of technology.

"While the profile of the fraudster has remained fairly consistent over the years, the means by which fraud is committed and the ways in which it is detected have changed," he explained.

"Developments in technology have not only enabled the fraudster, but also provide organizations with more tools to defend themselves,” Girgenti added. “Real time data analytics leveraging techniques such as predictive coding and machine learning and mining information available in public data bases and social media provide organizations with the means to stay a step ahead of even the most sophisticated fraudster."

Other insights gleaned from KPOMG’s latest research into fraud include:

  • In financial services, pharmaceuticals, consumer and industrial markets, the most common fraud is embezzlement.
  • In energy, public sector and information technology, communications and entertainment, the most common is procurement fraud.
  • Financial services yielded the highest cost of fraud, commonly more than $5 million per fraudster in comparison to $200,000 to $500,000 in other industries.
  • Corruption was more prevalent in pharmaceuticals, financial services and energy.
  • More than half (54%) of the frauds were facilitated by weak internal controls. This suggests that if many organizations tightened controls and the supervision of employees, the opportunity for fraud could be severely curtailed.
  • Strong internal controls will not prevent all fraud. For 20% of the fraudsters, the fraud was committed recklessly, regardless of the controls.
  • In 11% of the reviewed cases, fraudsters colluded to circumvent the controls.  In these cases, the fraudster may be somebody who understands the controls and knows how to manipulate them or who finds a flaw in the controls by accident and exploits them.

Interestingly, KPMG also found that most fraudsters usually do not join an organization with the aim of committing fraud.

 Instead, what happens is that changes in personal circumstances or pressures to meet aggressive business targets, especially once they are comfortable in their job and enjoy the trust and respect of colleagues, often creates the backdrop for their crime.

It’s certainly not a happy topic to discuss, especially as we enter the prime “holiday season” of the year, but it’s an issue trucking should keep an eye on as fraud and cargo theft won’t be disappearing from the range of issues on the freight industry’s radar anytime soon.

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