Collusive fraud on the rise: KPMG’s Global profiles of the fraudster report

According to the report, women are less likely to collude with only 45 per cent of them colluding, compared to 66 per cent of males. Collusion involving more than five people increased from 9 per cent in 2010 to 20 per cent in 2015.

Higher growth markets like India, Latin America and the Caribbean, exhibited higher collusive fraud rates, as compared with developed markets like the U.S, Australia and New Zealand, where several fraudsters acted solo.

34 per cent of collusive fraudsters cost the company USD1 million or more, compared with 16 per cent for soloists. Commenting on this finding, Mohit Bahl, Partner and Head, Forensic Services, KPMG in India stated, “Colluders inflict much more damage than individuals. Larger the group, bigger the damage. Increasingly, these groups include outside parties and companies need to watch out for how they mitigate the rise of third parties colluding with employees. A strong third party risk management programme which ensures comprehensive due diligence is carried out on vendors, channel partners and suppliers, is a sound way of combating fraud and assessing risks regularly.”

Fraudsters who collude tend to be senior employees who have worked at the company for longer when compared to individual fraudsters. Globally, 35 per cent of fraudsters are executives or non-executive directors, compared with 23 per cent in India. In addition, 63 per cent of the fraudsters surveyed in India constituted managers and staff members. This is consistent with the trend of perpetrators in India being younger.

This year’s survey is a follow-up to the 2013 report and is based on an analysis of 750 fraudsters across 81 countries, examined between March 2013 and August 2015. Globally, 79 per cent of the fraudsters are men; and the proportion of women has risen to 17 per cent from 13 per cent in 2010. Findings in India indicate that Indian fraudsters are younger in age, compared to their global counterparts. 32 per cent of the perpetrators were in the 26-35 age group, compared with 14 per cent globally.

“An interesting observation in this year’s survey in India finds an increasing number of fraudsters in the one to four years of service bracket (27 per cent) compared to 19 per cent globally, indicating that not only is the Indian fraudster younger, but also starts early,” said Jagvinder Brar, Partner, Forensic Services, KPMG in India.

The increasing incidence of technology in enabling these frauds is consistent with the trend of perpetrators being younger in our country (33 per cent of frauds in India were tech-enabled as opposed to 19 per cent globally). Cyber fraud, an important form of technology-based fraud, is emerging as a growing threat. Many organisations are aware of the issue but seem to be doing little about it.

In India, greed is the predominant motivation for 77 per cent of fraudsters compared with 60 per cent globally. Adding to this, Mritunjay Kapur, Partner and Head, Risk Consulting, KPMG in India said, “This manifests itself into personal financial gain and the desire to show better performance than what it is in reality. 64 per cent of fraudsters in India are high performers compared with 38 per cent globally. Their sense of superiority is stronger than their sense of fear or anger.”

Globally, and in India, weak internal controls were a contributing factor for 61 per cent of fraudsters. There was a sizeable jump in the proportion of fraudsters who saw an opportunity that presented itself due to weak controls, compared to the survey carried out in 2013.

Global trends indicate 44 per cent of the perpetrators were able to override controls, compared with 69 per cent in India. Frauds go undetected as anti-fraud controls (such as internal audit, maker-checker principles, suspicious managers and co-workers, and anti-fraud processes) are not strong enough and at times, non-existent or missing. Even if controls are strong, fraudsters find ways to evade or override them.

The most-prevalent fraud surveyed globally is the misappropriation of assets (44 per cent). This mainly includes embezzlement and procurement fraud followed by fraudulent financial reporting (20 per cent).

CV fraud is a significant trend observed in India. 13 per cent of the cases checked by KPMG in India’s verifications practice indicated discrepancies in CVs. Primary areas of fudging include education certifications, addresses and past employment records. This trend is observed to be common amongst both genders, with females fast catching up with their male counterparts.

In India, 59 per cent of fraudsters were detected as a result of a tip, complaint or a formal whistle blowing hotline and a further 25 per cent were detected as a result of a management review.

Fraud and corruption go hand in hand and regulators around the world are increasingly focusing on anti-bribery and corruption controls. Overall, 16 per cent of the fraudsters surveyed had committed corruption–type frauds and exhibited features that are different from other forms of fraudulent activity. “Supply side corruption tends to operate at the higher levels in an organisation; and it tends to be concentrated in the office of the chief executive or owners,” said Jagvinder Brar.

Six themes that emerge in the survey, as the global scourge of fraud continues to harm corporate reputations:

1.    Weak controls are a large and growing problem – opportunistic fraud is an increasing concern

2.    People can evade strong controls

3.    Fraudsters can either be lone wolves, or may hunt in packs, with the latter being more than twice as common

4.    Colluders can involve internal fraudsters and outsiders – also, larger the group, bigger the damage

5.    Technology is a double-edged sword and is enhancing the growth of frauds – it helps and it hinders fraudsters

6.    Cyber fraud is continuing to emerge as a threat

How to combat fraud

Based on analysis of the data, four major recommendations emerge:

1.    Fight back with technology

2.    Stay sharp and assess risks regularly

3.    Know your business partners and third parties

4.    Be vigilant against internal threats - if things do not look right, stop, pause and consider.