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Fraud is on the rise so don’t be complacent, KPMG

Posted on Jul 10, 2016

If you think we live in a country relatively free from the fraud and corruption that plagues many parts of the world, a new KPMG survey might shake you up a little. Our six-monthly Fraud Barometer* shows a large rise in number, and especially the value of frauds being committed in Australia.

For the period September 2015 to March 2016, 116 frauds occurred, with a value of $381.1 million – an average value per fraud of $3.3 million.*

This compares with 91 frauds with a value of $128.4 million, at an average value per fraud of $1.4 million, for the previous six month period.

Helpfully, this time, the Barometer has coincided with the release of KPMG’s Global report Profiles of the Fraudster, which enables us to compare how Australian frauds compare with international experience and, intriguingly, Australian fraudsters tend to be younger and more gender-diverse than their overseas counterparts.

Key findings include the following:

  • The most common perpetrators are business ‘insiders’, with frauds attributable to management averaging $5.7m – over double that of non-management employees. Most frauds relate to misappropriation of assets, embezzlement and abuse of position.
  • Gender diversity among fraudsters is changing – the proportion of frauds committed by women in Australia have increased by 26 percent. Male fraudsters are responsible for 61 percent of the offences, with women now committing 39 percent of the nefarious activity.
  • Internationally, the proportion of frauds committed by women was just 17 percent. Interestingly, male fraudsters were found to collude more than their female counterparts, both locally and globally.
  • Over a quarter of the fraudsters were aged below 36 years, which is almost double the proportion identified globally.
  • Investors and government agencies are more susceptible to being fleeced by fraudsters than any other category of victims. Government and investors together were the victims of more than $301m of these frauds.
  • The value of frauds against government agencies has increased by almost four times and over six times for investors.
  • Queensland and NSW top the fraud charts at $195 million and $124 million. A number of the significant investor frauds occurred in Queensland.
  • Maintaining extravagant lifestyles and gambling were key drivers of frauds, regardless of gender.
  • Locally and globally, whistle-blowers are becoming increasingly important in detecting fraud, particularly where the fraud involves collusion.

While these frauds include hardy perennials such as fake invoices being produced to misappropriate funds, theft of client funds, and corporate credit cards being used to fund personal expenses, a growing number of these cases now involve elements of cyber-crime. Although the cyber threat is often seen as an external threat to businesses, cyber-crimes are increasingly being perpetrated by malicious insiders, who already have access to key business systems.

We are seeing an alarming increase in the number of spoofed emails, which are often addressed to senior finance personnel, purportedly from someone in the C suite, with instructions to transfer large sums of money into bank accounts. We are finding that clients under-estimate the threat from the malicious insider when it comes to cyber-crime, and as a result they are not paying sufficient attention to the basics. Identity and access control is often weak, and organisations often don’t understand where their critical IP assets are located and who in the organisation has access to them.

A number of frauds in the research were uncovered by whistle-blowers, who noticed suspicious behaviour and appropriately raised these concerns so they can be actioned. This is often the way that many fraudsters are caught and held accountable for their actions. No matter what systems and controls are put in place, the best defence is often a vigilant employee noticing something amiss. It is important that they have a safe and confidential mechanism to report suspected fraud.

Many organisations are now using such a service – and more would be advised to do so. As our survey shows, fraud is not just something that happens to someone else – or in other countries.

Gary Gill is partner in charge of Forensics at KPMG

*The Fraud Barometer monitors the incidence of fraud cases in the Australian courts, with a value in excess of $50,000. It examines trends and characteristics, with a focus on perpetrators, victims and the nature of the frauds. This edition considers all such frauds between 1 October 2015 and 31 March 2016.