“What we are seeing is a new generation of people able to use more technology, and with access to much more information than past generations - all of which points to a new era for fraud and illegal activities,” says Gary Gill, KPMG Australia’s National Head of Forensic.
Rapid advancements in technology and proliferation of social media in an increasingly interconnected world, is making organisations more susceptible to fraud and illegal activities. The key change led by technology is the ease with which intellectual property can now ‘walk out’ of the organisation. And disturbingly, most organisations do not seem to realise how exposed their systems are to loss of sensitive information.
“Social media not only provides increased opportunities for collusion between internal and external parties, but also allows hackers to mine and use the increasing amounts of available online data in targeted cyber attacks,” continues Mr Gill. “Organisations must be as sophisticated in their cyber security as the hackers are in their methods. Cyber security must be a top priority in all risk management strategies.”
The survey, based on KPMG’s analysis of 596 fraudsters investigated globally by its member firms between 2011 and 2013, also found that fraudsters are typically hiding in plain sight, employed by the victim organisation (61 percent), in many cases for more than six years. In 70 percent of frauds, the perpetrator found it tough to go solo and so colluded with others.
“Corruption was a common element in cases of collusion, and the increasing prevalence of collusion between insiders and outsiders suggests that bribery will become a growing problem for Australian business,” says Mark Leishman, KPMG’s Asia Pacific Investigations Leader. “Organisations need to ask whether they are doing business with and through parties they can trust.”
The report further reveals that the three main drivers of fraud – motivation, opportunity and rationale – continue to be timeless themes. Capability, however, continually changes, causing the profile of the fraudster to alter. Organisations need to understand the ever-changing environment and behaviour of the fraudster if they are to mitigate the risk of fraud and respond quickly to such crimes if they occur.
“In Australia, changing economic circumstances have caused many organisations to adopt cost cutting measures which often start with back-office and middle management. These measures in turn have a real impact on the effectiveness of companies’ internal controls, increasing the opportunity for fraud. In this environment, procurement fraud, misappropriation of cash, and information theft are the most common threats,” says Mr Leishman.
Other key survey findings included:
- The overwhelming reason for committing fraud is financial. Out of the 1,082 motivations listed, 614 were motives of greed, financial gain and financial difficulty, and 114 were related to business targets. The only non-financial motive that comes close is sheer eagerness (or “because I can”) with 106 reported instances.
- More than one third of the fraudsters (36 percent) exhibited a sense of superiority as rationale for their fraud. This may be linked to the fact that executive directors, the largest single job title, committed 29 percent of the frauds.
- The most prevalent fraud is misappropriation of assets (56 percent), of which embezzlement comprises 40 percent and procurement fraud makes up 27 percent. The second most prevalent fraud is revenue of assets gained by fraudulent or illegal acts (24 percent).
- When acting in collaboration, 74 percent of frauds were perpetrated over one to five years. In 43 percent of the cases, the financial impact of victims exceeded $500,000, exceeding $5,000,000 in 16 percent of these cases, more than fraudsters acting solo.
“Ultimately, the fraudster of tomorrow will depend on the opportunities of the day,” said Mr Gill. “Two decades ago, illicitly taking money from a bank was usually accomplished by a closely knit gang, sometimes using violent methods or forged signatures to achieve their ends. The opportunities to rob a bank have been transformed by the internet, smart devices and the ability to access and analyse vast amounts of data. These factors – technology and information – are changing the fraud horizon and organisations need to understand the resulting impact on fraud risk.”