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Fraudsters pull rank

A CORPORATE fraudster may not always be a disgruntled middleman, but is more often found to be one of the people running the very company that is defrauded.

According to research from KPMG, company bosses are committing an increasing proportion of corporate frauds: the volume of cases involving senior management is now a third of all cases.

Globally, it was also found that board members had perpetrated fraud in 18% of the cases surveyed. This has increased from 11% in 2007, the KPMG report reveals.

It was found that the typical fraudster is male, aged 36-45, and has worked for the company for more than 10 years.

The picture is even more striking in the UK, says Richard Powell, who leads KPMG’s Investigations Network in EMEA.

“In the UK, the survey showed an even higher proportion of fraudsters who had worked for their employer for more than 10 years (57%), with 50% in senior management or board roles,” he says.

The report reviewed 348 white-collar crime cases investigated between January 2008 and December 2010 in 69 countries.

It illuminates an area that is often invisible to shareholders, as 77% of the cases sampled in the report never received public attention.

In Europe, the Middle East and Africa, the average loss per case in 2011 was $900,000 (£555,672) with cases typically taking 3.7 years to detect. Examples of frauds included bribes, mis-statement of financial results and false billings by a supplier to fund kickbacks to a senior employee.

The research also highlights weaknesses in companies’ attempts to detect fraud. It notes that the so-called red flags that indicate fraud (such as employees who rarely take holidays or appear to be living beyond their means) were ignored.

In 2011, it was found that one or more red flags had been noticed prior to detection in some 56% of frauds, but only 6% of those had been acted upon. In 2007, 24% of red-flag cases were acted upon.

The study notes that this decline is concerning. As many instances of fraud likely go undetected, it is necessary to catch such signals in the increasingly difficult battle against fraud. ?

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