The latest results from the KPMG Fraud Barometer have just been published and provides an analysis of UK fraud cases in 2022. The bi-annual Barometer is based on media-reported frauds and helps businesses remain alert to new threats and respond to fraud risks in an appropriate and proactive manner.
The global profiles of the fraudster: Technology enables and weak controls fuel the fraud, is based on a questionnaire asking KPMG Forensic professionals around the world for details about the fraudsters.
The profile of fraudster. Based on a worldwide survey of KPMG professionals who investigated 750 fraudsters between March 2013 and August 2015, the typical fraudster has similar characteristics when
Profile Of A Fraudster. Fraudsters may be from the senior management of the company or the board of directors (BoD). The board of directors is the tone from the top and works as agents for the company’s shareholders. They report to the shareholders, and their ultimate objective is to maximize the shareholder’s wealth.
Of the perpetrators responsible for the 1,483 occupational fraud cases analyzed in our study:
Thinking about the people behind the processes, transactions and numbers — and considering what might lead those people to succumb to the pressure, opportunity and rationalization to commit fraud — is critical to protecting an entity’s resources from dishonest employees.
With this in mind, the ACFE has created an infographic that illustrates the statistical profile of a fraudster to help inform anti-fraud professionals, management and the general public about some of our findings regarding occupational fraud perpetrators. This profile can be a valuable training and awareness tool, particularly when conveying the message that fraudsters don’t exhibit any sort of identifying hallmark — no special uniforms or badges, no “bad-guy” masks. The more we understand and help educate others about the human face of fraud, the better prepared we all are to prevent and detect fraudulent behavior.
Accounting doesn’t happen in a vacuum. The performance, processing, reporting and analyzing of financial transactions inherently involves people. And people, by nature, make errors, have lapses in judgment, and — sometimes — break the rules intentionally.
According to the survey, the most frequent description of the fraudsters profiled is autocratic and possessing . a sense of superiority perceived to be far stronger than a sense of anger or of fear. Fraudsters with unlimited authority tend to be even more autocratic and have an even stronger sense of superiority.
Personal Traits. — 38 percent of fraudsters are perceived to be well respected and 10 percent are of low repute. — Their sense of superiority is stronger than their sense of fear or anger. Circumvention of Controls.
Consistently across the KPMG surveys, the perpetrator of fraud tends to be male between the ages of 36 and 55, working with the victim organization for more than six years, and holding an executive position in operations, finance or general management. Additional key characteristics of the fraudster revealed in the 2015 survey are as follows:
Fraud is a global scourge that harms corporate reputations, costs millions and ruins lives. It is a heavy economic and moral burden on society. KPMG has reported on fraud trends for many years and this is the third report that profiles fraudsters around the world. For this report, our professionals completed a detailed questionnaire about 750 fraudsters, based on what we learned during our investigations. We added new questions in the third survey to learn more about the types of people who commit fraud, the sorts of fraud they commit and the manner in which the frauds are detected. The latest questionnaire included queries regarding the technology component of fraud and cyber fraud. We conclude this report with our recommendations as to how best to combat fraud in an environment where the threats are evolving. This report on the profile of the fraudster is intended to help clients to understand this complex field and how it is likely to change in the future. We also hope our survey will contribute to a worldwide discussion about fraudsters and ways to combat them. Companies, governments and society at large have a direct interest in the outcome of this discussion.
This is partly because fraudsters need to collude to circumvent controls. So collusion is especially threatening for a company. Larger groups (say, five or more people) tend to do more harm financially than single fraudsters or small groups. — Male fraudsters tend to collude more than women do.
Companies understand that fraud is a problem that can lead to financial losses and reputational damage. Regulators around the world are also tightening their supervision of companies and enforcing stricter rules of business conduct, led by the US in the wake of a raft of corporate scandals that have not fully faded from the public’s consciousness. Why is the existence of weak controls a growing problem? One reason found by KPMG professionals around the world is that companies are not investing in stronger anti-fraud controls
Corporate fraud is a persistent, global challenge for executives and board members. Managing the risk of fraud has grown more complex as companies face an escalating threat of cyber fraud and no let-up in the more traditional forms of wrongdoing, such as the falsification of books and records. In response, many companies have set up strong internal controls to prevent, detect and respond to fraud. But this is far from universal, as our survey shows that weak internal controls were a factor for 61 percent of fraudsters (72 percent in Europe). This highlights not only the scale of the management challenge for many companies, but also the potential benefits derived from tightening anti- fraud controls, including the avoidance of financial loss and reputational costs
It is important to understand the characteristics of fraud perpetrators because theyappear to be much like people who have traits that organizations look for in hiring employ-ees, seeking out customers and clients, and selecting vendors . This knowledge helps us tounderstand two things (1) most employees, customers, vendors, and business associates andpartners fit the profile of fraud perpetrators and are probably capable of committing fraudand (2) it is impossible to predict in advance which employees, vendors, clients, and cus-tomers will become dishonest. In fact, when fraud does occur, the most common reactionby those around the fraud is denial. Victims can’t believe that individuals who look andbehave much like them and who are usually well trusted can behave dishonestly.
Fraud is perpetrated to benefit oneself or to benefit an organization, or both. Employeefraud, in which individuals embezzle from their employers, usually benefits the perpetra-tor. Management fraud, in which an organization’s officers deceive investors and creditors(usually by manipulating financial statements), is most often perpetrated to benefit anorganization and its officers. In this section we will discuss the different pressures thatmotivate individuals to perpetrate fraud on their own behalf. Most experts on fraud believethese pressures can be divided into four types (1) financial pressures, (2) vices, (3) work-related pressures, and (4) other pressures.
So far, we have discussed the first two elements of the fraud triangle (1) perceived pres-sure and (2) perceived opportunity . The third element is rationalization. To see how ratio-nalization contributes to fraud, let’s look at the infamous case of Jim Bakker and RichardDortch. These men were convicted on 23 counts of wire and mail fraud and one count ofconspiracy to commit wire and mail fraud. As a result of their conviction, the perpetratorsof one of the largest and most bizarre frauds in U.S. history were sent to jail. In hisremarks to the court prior to Jim Bakker’s sentencing, prosecutor Jerry Miller summarizedthis PTL (Praise-the-Lord) fraud with the following comments:The biggest con man to come through this courtroom, a man corrupted by powerand money and the man who would be God at PTL, is a common criminal. Theonly thing uncommon about him was the method he chose and the vehicle heused to perpetrate his fraud. He was motivated by greed, selfishness, and a lustfor power. He is going to be right back at it as soon as he gets the chance. Mr.Bakker was a con man who in the beginning loved people and used things, buthe evolved into a man, a ruthless man, who loved things and used people.17How did Jim Bakker, the beloved TV minister of the PTL network, rationalize thecommitting of such a massive fraud? Here is his story:PTL had a modest beginning in 1973 when it began operating out of a furnitureshowroom in Charlotte, North Carolina. By October 1975, it had purchased a
The third component of the control structure is good control activities (or procedures).Individuals who own their own businesses and are the sole “employee” probably do notneed many control procedures. Although these people may have ample opportunity todefraud their own business, they have no incentive to do so. They wouldn’t steal fromthemselves, and they would never want to treat customers poorly. However, organizationsthat involve many employees must have control procedures so that the actions of employ-ees are congruent with the goals of management and the owners. In addition, with controlprocedures, opportunities to commit and/or conceal frauds are eliminated or minimized.No matter what the business is, whether it is the business of operating a financial institu-tion, a grocery store, a Fortune 500 company, or the business of investing personal assets,there are five primary control procedures or activities:
The control environment is the work atmosphere that an organization establishes for itsemployees. The most important element in an appropriate control environment is man-agement’s role and example. There are numerous instances in which management’s dis-honest or inappropriate behavior was learned and then modeled by employees. In thefamous Equity Funding case, management wrote insurance policies on individuals whodidn’t exist and sold them to other insurance companies. Seeing this dishonest behavior,one employee said to himself, “It doesn’t make sense to have all these fictitious peoplelive forever. I’ll knock a few of them off and collect death proceeds. My actions won’t beany different from those of the management of this company.” In another case, employeesrealized top management was overstating revenues. In response, the employees beganoverstating expenses on their travel reimbursement forms, billing for hours not worked,and perpetrating other types of fraud.
One reason fraud committed by high-level perpetrators are most costly could be that their schemes tend to last longer.
Interestingly, in 92.6% of the fraud cases examined by the ACFE, the perpetrator had been with the victim organization for more than 1 year. Dr. W. Steve Albrecht, a previous president of the Association of Certified Fraud Examiners, notes: “Just because someone has been honest for 10 years doesn’t mean that they will always be honest.” Not surprisingly, the longer the tenure, the larger the average loss. In fact, the typical fraudster is not a pathological criminal but rather a person who has achieved a position of trust.
According to Cressey’s hypothesis “trusted persons become trust violators when they conceive of themselves as having a financial problem which is non-shareable, are aware this problem can be secretly resolved by violation of the position of financial trust, and are able to apply to their own conduct in that situation verbalizations which enable them to adjust their conceptions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds or property.” Over the years, the hypothesis became known as the “fraud triangle”, which I have mentioned in the first part of the topic "All about fraud schemes...". One leg of the triangle represents a perceived pressure (or non-shareable financial need). The second leg represents perceived opportunity, and the final leg denotes rationalization.
A significant correlation between authority and fraud loss has been found and it likely reflects the fact that high-level fraudsters tend to have greater access to an organization’s assets than lo-level personnel. They may also have greater technical ability to commit and conceal fraud, and they might be able to use their authority to override or conceal their crimes in ways that low-level employees cannot. One reason fraud committed by high-level perpetrators are most costly could be that their schemes tend to last longer. The median duration of a schemes committed by an owner/executive was 24 months, compared to 18 months for schemes committed by managers and 12 months for those committed by employees.
But because trusted persons possess this information and skill, when they face a non-shareable financial problem they see it as something that they have the power to correct. They apply their understanding of the possibility for trust violation to the specific crises they are faced with.
Those with a postgraduate degree caused a median loss of USD 230,000, with a university degree – USD 160,000, with some university degree – USD 130,000, and with high school graduate degree – USD 75,000. This data may indicate that highly educated fraudsters have superior technical abilities or knowledge that make them more effective at committing fraud, but it is also probably influenced by the fraudster’s position of authority.
Problems resulting from personal failure - are those that the trusted person feels he caused through bad judgment and therefore feels personally responsible for; because these trusted individuals fear a loss of status, the individual is afraid to admit to anyone who could alleviate the situation the fact that he has a problem which is a consequence of his ‘own bad judgment’ or ‘own fault’ or ‘own stupidity;
Of the perpetrators responsible for the 1,483 occupational fraud cases analyzed in our study:
Thinking about the people behind the processes, transactions and numbers — and considering what might lead those people to succumb to the pressure, opportunity and rationalization to commit fraud — is critical to protecting an entity’s resources from dishonest employees.
With this in mind, the ACFE has created an infographic that illustrates the statistical profile of a fraudster to help inform anti-fraud professionals, management and the general public about some of our findings regarding occupational fraud perpetrators. This profile can be a valuable training and awareness tool, particularly when conveying the message that fraudsters don’t exhibit any sort of identifying hallmark — no special uniforms or badges, no “bad-guy” masks. The more we understand and help educate others about the human face of fraud, the better prepared we all are to prevent and detect fraudulent behavior.
Accounting doesn’t happen in a vacuum. The performance, processing, reporting and analyzing of financial transactions inherently involves people. And people, by nature, make errors, have lapses in judgment, and — sometimes — break the rules intentionally.