kpmg - global profiles of the fraudster

8/13/2019 KPMG - Global Profiles of the Fraudster

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Globalproles of

the fraudsterWhite-collar crime presentand future

kpmg.com/fraudster
http://www.kpmg.com/fraudsterhttp://www.kpmg.com/fraudster


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Fraud specialists have long debatedwhether it is possible to develop aprole of a fraudster that is accurateenough to enable organizations

to catch people in the act of fraud or evenbeforehand. The prediction of a crimebefore it occurs is, at least for now, thesubject of science ction. But an analysisof the constantly changing nature of fraudand the fraudster can help organizationsstiffen their defenses against these criminal

activities. Forewarned is forearmed.

This report contains KPMGs analysis of596 fraudsters member rms investigatedbetween 2011 and 2013. It is intendedto provide the reader with insights intothe relationship between the attributesof fraudsters, their motivations and theenvironment in which they ourish. Wehave also interviewed KPMG memberrms investigation leaders to gainadditional insights. This report buildson our 2011 publication, Who is the typical fraudster ?1 covering 348 casesinvestigated, and on our 2007 publication,Prole of a fraudster .2 The 2011 report focused on the relationship betweenglobal patterns of fraud, various attributesof fraudsters and how these may evolve inthe next ve years.

The typical fraudster among the 596included in the 2013 survey is very similar

to the typical fraudster identied in theinvestigations KPMG rms reported ontwo years earlier. The typical fraudster inthe 2013 study is 36 to 45 years of age,is generally acting against his/her ownorganization, and is mostly employed in anexecutive, 3 nance, operations or sales/ marketing function. He/she holds a seniormanagement position, was employed inthe organization in excess of six years and,in committing the fraud, frequently acted

in concert with others.

Other ndings,however, aredifferent. Thistime, we havedeveloped a seriesof themes in orderto understandthe changingrelationship amongthe fraudster, his/ her environmentand the fraudscommitted. Andafter taking intoaccount the insights of our investigationleaders around the world, we conclude thatthe type of fraud and the type of fraudsterare continually changing. The intriguingthing about fraud is that it is alwaysmorphing, like a strain of u; you can cure

todays strain, but next year it evolvesinto something as bad if not worse,says Phil Ostwalt, Global Coordinatorfor Investigations for the Global Forensicpractice at KPMG.

One major change is the growing useof technology by fraudsters, and notjust in the technologically advancedcountries, such as the US a concernfor all business is that we are about tosee a new generation of people, able touse more technology and with access

to much moreinformation thanpast generations. Allof which points toa new era for fraudand illegal activities,says Arturo delCastillo, ManagingDirector of Forensic,KPMG in Colombia.

We believe thatunderstanding thisuidity will enable

organizations to protect themselvesbetter against fraud and may improvetheir ability to identify the fraudsters,many of whom perpetrate their crimesover long periods. A lot of fraudsters arehiding in plain sight. They may blend intothe background or occupy prominent

Introduction

The typical fraudsteramong the 596

included in the 2013survey is very similar

to the typical fraudsteridentied in the KPMGinvestigations reported

on two years earlier.

1 Who is the typical fraudster? KPMG analysis of global patterns of fraud, 20112 Prole of a fraudster survey, 20073 The function is also known as general management and includes the Chief Executive Ofcer.

2 Global prolesof the fraudster

2013 KPMG International Cooperative (KPMG International). KPMG International provides no client ser vices and is a Swiss entity with which the independent me mber rms of the KPMG net work are afliated.


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positions in the organization. The typesof fraud they perpetrate are continuallychanging, amid a business environment inconstant ux.

New fraud techniques are continuallydeveloped and organizations need torespond by updating their defenses.Companies cant stand still andallow yesterdays controls to addresstodays or tomorrows frauds ter,says Ostwalt. Technology not onlyenables the fraudster, but also enablesthe organization to defend itself.Companies have to think harderabout whether old fraud preventiontechnologies still apply. Newerapproaches like data analytics and datamining give the company a much betterchance of catching the fraudster, saysGrant Jamieson, partner in charge ofForensic Services for KPMG in HongKong.

Read on to nd out more about the fraudsmember rms investigated globallysince the 2011 report, our analysis ofthe changing prole of a fraudster, howit relates to their environment and thecrimes committed, and our views of whatfraudsters may look like and how theymight behave in the future.

Based on KPMGs analysis of the 596 fraudsters member rms investigated,some of the key characteristics of fraudsters include:

Age 70 percent of fraudsters are between the ages of 36 and 55

Employment 61 percent of fraudsters are employed by the victim organization.Of these, 41 percent were employed there for more than 6 years

Collusion In 70 percent of frauds, the perpetrator colluded with others

Type The most prevalent fraud is misappropriation of assets (56 percent), ofwhich embezzlement comprises 40 percent and procurement fraud makes up27 percent

The second most prevalent fraud is revenue or assets gained by fraudulent orillegal acts (24 percent)

When fraudsters acted alone, 69 percent of frauds were perpetrated over one tove years. Of these, 21 percent of the frauds incurred a total cost to the victimorganization of $50,000-$200,000 and 16 percent cost a total of $200,000-500,000. In 32 percent of these cases the cost to the victim organizationexceeded $500,000, exceeding $5,000,000 in 9 percent of these cases

When acting in collaboration, 74 percent of frauds were perpetrated over one tove years. With regard to value, 18 percent of frauds had a total value of $50,000-$200,000. In 43 percent of these cases the cost to the victim organization

exceeded $500,000, exceeding $5,000,000 in 16 percent of these cases

93 percent of frauds were committed in multiple transactions. For 42 percent ofthese frauds, the average value per individual transaction was between $1,000and $50,000

72 percent of all frauds were perpetrated over a one-tove year period (33 percentover one to two years and 39 percent over three to ve years).

3Global prolesof the fraudster

2013 KPMG International Cooperative (KPMG International). KPMG International provides no client ser vices and is a Swiss entit y with which the independent member rms of the KPMG net work are afliated.


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MethodologyBy means of a survey, KPMG gathered data from fraudinvestigations conducted by KPMG member rms forensicspecialists in Europe, Middle East and Africa (EMA), the

Americas, and Asia-Pacic regions between August 2011 andFebruary 2013. We analyzed a total of 596 fraudsters who wereinvolved in acts committed in 78 countries. The survey examinedwhite collar crime investigations conducted across the threeregions, from interviews from 42 KPMG Forensic practitioners,where we were able to identify the perpetrator and couldprovide detailed contextual information on the crime.

The analysis identies:

Fraudster pro les and details of the more common types of fraud

Environment considers that tend to enable fraud

The impact of fraudsters capabilities

The context in which fraudsters ply their trade across thecountries in which KPMG operates

The ndings in this report are contrasted, where possible, withour 2007 and 2011 analysis to highlight shifts in patterns and toprovide a perspective on emerging trends.

This report does not reveal the names of any parties involved toprotect condentiality. Many of the cases included here did notenter the public domain; others were publicized but usually withoutthe details. All monetary amounts are reected in US Dollars.




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Threedrivers offraud

In order to understand a fraudstersprole it is useful to consider three driversof fraud: opportunity, motivation andrationale. People commit fraud whenthree elements occur simultaneously, theperfect storm; motivation, opportunityand ability to rationalize the act. Inalmost all cases, this explains why thefraud occurs and why a particular typeof person becomes a fraudster, saysKPMGs Forensic practice in China.The three drivers are part of a standardmethodology developed for fraudinvestigators in the 1950s. We includecapability as a component of opportunityto create a more complete picture ofthe person who commits fraud. Here isone way to understand the picture: Thepotential fraudster sees a door openedby opportunity. Motive and rationalepropel him/her towards the doorway andcapability takes him/her through it. 4 RATIONALEMOTIVATION

The FraudTriangle

OPPORTUNITY

4 See Beyond the fraud triangle , Fraud Magazine, September/October 2011.

The Fraud Triangle

Source: Global proles of a fraudster, KPMG International, 2013.




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Now, let us look at each of the drivers offraud in turn:

OpportunityPeople do not commit fraud without anopportunity presenting itself. A pluralityof fraudsters in the surveyed casesinvestigated have worked in the victimorganization for more than six years,and nearly three quarters of the fraudswere conducted over a 1-5 year period.This implies that fraudsters do not join anorganization with the aim of committingfraud. But changes in personalcircumstances orpressures to meetaggressive businesstargets may createthe conditionsconducive to fraud.They may committhe fraud once theyare comfortable intheir job and enjoythe trust and respectof colleagues (seesidebar).

How does the opportunity present itself?According to the survey, 54 percent of thefrauds were facilitated by weak internalcontrols. This suggests that if manyorganizations tightened controls and thesupervision of employees, the opportunityfor fraud would be severely curtailed. Too

often, organizations do not focus on fraudprevention by setting up the right controlsand learn their lesson too late.

Many companies think of proactiveanti-fraud measures like insurance ifit may never happen, why spend themoney? says James McAuley, Partner,Forensic, KPMG in Canada. Elsewhere,organizations lack even simple controls.Frauds frequently occur because of afailure to have a basic control in place.Our investigations show, for example,that management does not always

check supportingdocumentationbefore authorizing atransaction. This goesback to Swedensculture of trust,says Martin Krger,Partner in charge ofForensic for KPMGin Sweden. In partsof the Middle East,many organizationsare only beginningto understand the

need for controls to prevent fraud. Wesee many public and privately ownedcompanies exposed to fraud, with fewdefenses. Although internal controlsand fraud risk management is not yetembedded in the business culture, the

Opportunistic fraudster Characteristics: rst-time offender,

middle aged, male, married withchildren, trusted employee, in aposition of responsibility, goodcitizen in community

Typically has a non-sharableproblem that can be solvedwith money, creating perceivedpressure

When discovered, others areoften surprised by the allegedbehavior of the perpetrator

Predator Often starts as an opportunistic

fraudster

Alternatively, seeks outorganizations where he or shecan start a scheme almost

immediately upon being hired

Deliberately defraudsorganizations with little remorse

Better organized than theopportunistic fraudster and withbetter concealment schemes

Better prepared to deal withauditors and other oversightmechanisms

Managementfrequently regards

fraud risk as a singledot on the risk

matrix, not always

fully appreciatingits real nature andextent.

Having good internal controls isimportant, but with any control you areultimately relying on the human element.Niamh LambeDirector of KPMG, Head of KPMG Forensic Ireland




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dialogue has started, says ArindamGhosh, Associate Director and Headof Forensic Services, Risk Consulting,KPMG, in Bahrain and Qatar.

But strong internal controls will notprevent all fraud. For 20 percent of thefraudsters, the fraud was committedrecklessly, regardless of the controls.And for 11 percent, fraudsters colludedto circumvent the controls. In thesecases, the fraudster may be somebodywho understandsthe controlsand knows howto manipulatethem or whonds a aw inthe controls byaccident andexploits them. Nocontrol systemis watertight.Human vigilanceis required.KPMGsinvestigators say that organizations needto monitor continuously the internal andexternal environment, yet they havefound that most of them do not do this.Management frequently regards fraudrisk as a single dot on the risk matrix, notalways fully appreciating its real natureand extent. This often means it is not

then given the attention and treatmentrequired to manage the risk, says MarkLeishman, Partner, Forensic Services,KPMG in Australia.

Sanctions, such as civil litigation orpublic prosecution, may deter fraud,but few companies are prepared to riskharm to their reputation. A jail sentencewas the fate of only 7 percent of thefraudsters, while criminal or civil litigationproceedings was for 35 percent. Fifty-

ve percent offraudsters weredismissed from theirjobs, thus raising therisk that fraudstersmay commit crimesat other companieswhere they aresubsequentlyemployed in theabsence of beingprosectured. All themore important,therefore, to

establish regulations to control businessbehavior and then to enforce them. InSingapore, relatively speaking, there isvery little corruption, mainly because theenforcement is stringent, and businessis conducted in a transparent way, saysLem Chin Kok, Partner, KPMG ForensicServices, KPMG in Singapore.

CapabilityAs noted earlier, we include capability as asubset of the opportunity driver. Capabilityconsists of those attributes of thefraudster that enable him/her to exploit theopportunity, when it arises. The attributesare the fraudsters personal traits and his/ her ability to execute the crime.

Capability often depends, therefore, uponthe seniority of the fraudster. A largeproportion of fraudsters holds managerialor executive positions 5 (25 percent and29 percent respectively of those employedby the victim organization). In the next 3to 5 years, we may see the fraudster in theEast Africa region becoming increasinglysophisticated and senior in the organizationas company controls improve, and morefraudsters are successfully tried andsentenced, says Marion Barriskell, Headof Investigations for KPMG in East Africa.The more senior the fraudster, the greaterthe ability to get past controls. We usuallynd the fraudster overriding controls.While most companies in Switzerland havestandard internal controls, a person canroot out opportunities after 4 or 5 years,says Anne van Heerden, Partner in chargeof Forensic and Consulting practices forKPMG in Switzerland.

Among those insiders who colludewith other employees, the respectiveratios are 24 percent and 38 percent.

In Singapore, relativelyspeaking, there is

very little corruption,mainly because

the enforcementis stringent, and

business is conductedin a transparent way,

5 As noted earlier, KPMG tends to investigate frauds perpetrated by senior employees, so this nding may nothold among the entire population of fraudsters, in which there may be a high proportion of crimes committedby lower-level employees.




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Second, 46 percent of all fraudsters werecomputer literate, which is increasinglyan asset when so much data is stored incomputers and when cyber fraud is likelyto grow in frequency. In terms of personaltraits, the preponderant characteristicsdo not tend to support the notion of areclusive loner. The fraudster tends to behighly respected (39 percent of all casessurveyed), friendly (35 percent) and/or

extroverted (33 percent).MotivationFraud, as with any crime, requires amotive, and for the 596 fraudsters, theoverwhelming reason for committingfraud is nancial. The survey respondentswere offered 14 possible motivations andcould select as many as they believedappropriate. Out of a total of 1,082motivations listed, 614 were motives ofgreed, nancial gain and nancial difculty,and a further 114 were related to businesstargets. The only non-nancial motivethat comes close is sheer eagerness (orbecause I can) with 106.

These 614 motivations cover a wide rangeof nancial triggers. One such is a desireto enhance ones lifestyle. Typically,a person commits fraud to fund anextravagant, or at least very comfortable,lifestyle; we seldom see people turnfraudster to make ends meet. Already welloff, we often wonder why they take the

risk, says Anne van Heerden, Partner andHead of Forensic for KPMG in Switzerland.Other nancial triggers include the fear of

missing a nancial target or the desire fora bigger bonus. More foreign companiesare increasing local managementsincentives linked to performance andcutting formal earnings. We see thistriggering increased earnings manipulationand nancial statement fraud, asmanagers chase targets, says JimmyHelm, Partner and Head of Forensic forKPMG in Central and Eastern Europe.

Indeed, several investigations leadersnoted an increase in earnings manipulation,no doubt related to the effects of theeconomic recession. With the economicpressures, several companies facingbankruptcy and, unable to meet stringenttargets set by nancial institutions, havebeen resorting to nancial-statement fraudor earnings manipulation to demonstrategrowth, says Yvonne Vlasman, Partner,Forensic, KPMG in the Netherlands.

Greed infrequently seems to spill over intoobservable patterns of behaviour. Only 18percent of the fraudsters had expensivehobbies and 17 percent drove expensivevehicles, hardly distinguishing featureswhen the fraudster is a senior executive.

RationaleFraudsters, as with other types ofcriminals, will frequently provide a rationalefor their deeds. Emotional motivatorssuch as anger and fear were mentionedinfrequently among fraudsters. Anger andfear were important factors in 10 percent orless of the 596 fraudsters. Even a sense ofbeing under-remunerated was mentioned

Fraud by industryIn every industry, fraud tends to be shaped by the

opportunities for malfeasance. In nancial services,pharmaceuticals, consumer and industrial markets, the

most common fraud is embezzlement. But in energy &natural resources (ENR), the public sector and information,

communications & entertainment, the most common fraudis procurement. Financial services yielded the highest cost

of fraud, commonly more than $5 million per fraudster.Other industries suffered lower costs, often in the $200,000

- $500,000 range. Corruption was more prevalent inpharmaceuticals, nancial services and ENR than in other

industries. In the case of pharmaceuticals and nancialservices, this occurred despite the fact that organizations in

these industries operate in a highly regulated environment.

as important in only 16 percent of theinvestigations, somewhat surprising sincenancial gain is an overriding factor in fraud.

The only emotion that appears to besignicant is a sense of superiority, which isimportant for 36 percent of the fraudsters.This may be linked to the fact that 29percent of the frauds were committedby executive directors, the largest singlejob title. Indeed, 44 percent of executivedirectors felt a strong sense of superiority,no doubt reinforcing their view that they didnot need to play by the rules regulating thebehavior of the rest of the workforce.




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As observed by KPMG rms investigators,the reason for the fraud is broadlydetermined by the ethical and culturalcontext, and this varies from countryto country. Government regulation andthe enforcement of the rules can oftenreinforce ethical standards, because afraudster who is prosecuted will nd itharder to rationalize his/her actions bysaying that the behavior is accepted inthe country. A decade ago in parts of

Europe, companies could deduct bribesin foreign jurisdictions as a useful cost.However, what was previously permittedand considered a cost of doing business

is now illegal; people will need to changetheir habits, led, rather than trailed, bylegislation, says Gert Weidinger, Partnerin charge of Forensic Services for KPMG inAustria.

In some East African countries, businessrules are being tightened and moremoney spent on prosecution of fraud,and malfeasance is becoming less andless acceptable. Over recent times,there is a decreasing tolerance for fraudas new governments promote freedomof speech and invest in the countrysenforcement framework. The attitude

towards fraud is changing, from grassroots to business and government; fraudis less acceptable. In short, the windowon endemic corruption is slowly closing,says Barriskell. In Vietnam, there aresigns of stronger enforcement, too.Kickbacks and bribes in procurementare widespread; it is part of how businessworks in Vietnam, and often consideredharmless compared to fraud or theft. Butwe expect tangible outcomes in the next

3-5 years from the increased emphasis onreducing fraud, says John Ditty, Chairmanof KPMG in Vietnam and Cambodia.




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Natureversusnurture

The relative impact of personal and environmentalfactors on the propensity to commit fraud

It is important to understand whetherpersonal or environmental factors arestronger determinants of fraudulentconduct, because this nding willinuence the way fraud is investigatedand how the risk of fraud is managed.If personal factors are dominant,fraud investigations (and fraud riskmanagement) will focus on the fraudsterspersonality. If environmental factors are

dominant, the investigation will focus onthe environmental aspects to determinehow a fraud occurred.

We isolated those fraud cases KPMGmember rms investigated in which wewere condent that corrupt conduct waspresent. Corrupt conduct in the executionof fraud provides markers that helpedbuild a prole of how fraudsters behave ina way that introduces corruption into theircrimes. These markers consist of certainbehavioral patterns of a specic type offraudster and help enable the prediction ofcorrupt behavior as a prole element of afraudster. In analyzing the corrupt conduct,key observations were grouped into thethree drivers, adding for considerationcapability as a subset of opportunity(opportunity, motivation, rationale andcapability; the rst two categories areenvironmental factors, the latter two arepersonal attributes).

For 53 percent of the 198 fraudsterswhere corrupt conduct was present,weak internal controls contributed tothe perpetration of the fraud. Internalcontrol is, however, not a strong factorinuencing whether a person wouldengage in corrupt behaviour. Corruptbehaviour involves at least two people,and at least one of them is rarely subjectto internal controls. The increasing

globalization of organizations is makingit more and more difcult for thecentral ofce to monitor what far-ungdepartments are doing. In the UK morethan 60 percent of bribery and corruptioninvestigations relate to problems in otherjurisdictions. This is not about more orless corruption in different countries, butthe fact that the further away from headofce you go, the more the messagedissipates, especially in the face ofsignicant pressure on people to achieve

results, says Alex Plavsic, Head ofForensic for KPMG in the UK.

More relevant, perhaps, is the nature ofthe authority under which the fraudsteroperated. For 62 percent of the 130fraudsters analyzed where we couldobserve the degree of authority enjoyedby the fraudster and where corruptbehavior was involved, we found thefraudster had unlimited authority over

the domain in which the fraud occurred(whether the domain be the right to signcontracts, authorize payments, and soon). We continue to see the archetypalfraudster in most fraud investigations inCentral and Eastern Europe to be a seniorexecutive or manager with authority,and having been with the company forover 4 years, knowing the system andits weaknesses. What has changed is

more collusion, more recklessness,says Helm.

In this sense, unlimited authority reectsa lack of internal controls, albeit in thegovernance of the domain in whichthe fraud occurred. We observe that in61 percent of the 214 fraudsters withunlimited authority KPMG member rmsinvestigated, the frauds occurred in aweaker regulated environment. Thus,the environmental themes of controlsand checks and balances are central tothree of the four categories mentionedabove (opportunity, motivation, rationale;the other one being capability). Fraudis most common in smaller, family-owned enterprises mainly because theylack the controls to protect themselvesagainst potential fraud. Yet these kindsof companies form the core of the Greekeconomy, says Christian Thomas, Partner,Head of Forensic for KPMG in Greece.




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We consider four factors corporatecompetition (that is, rivalry amongcolleagues), market competition (that is,one company competing with another), anaggressive sales culture, and the desire bythe fraudster to hide bad news that arepartly environmental, but we judge them tobe more closely associated with personalattributes of corrupt behaviour. A fraudster is

making a choice about whether and how torespond to these environments, for example,by trying to outdo his/her rivals to earn thehighest sales commission. In certain cases,a feeling that everybody does it can breedfraud. A KPMG survey 6 showed that almostall companies believed their competitorswould violate ethical standards to obtainbusiness, says Raul Saccani, SeniorManager, Forensic, KPMG in Argentina.

Corporate competition

22%

23% 31%

29%

Market competition

Aggressive sales environment

Wanting to hide bad news

However, based on the data, wewere not able to say with condencethat any of these four factors weremotivators or pressure points for the 198fraudsters who behaved corruptly. Theoccurrences of these factors are set out inFigure 1.

The results of our survey thereforeindicate that factors relevant to pressureand motivation have a weaker inuenceon a fraudsters propensity to behavecorruptly than factors relevant toopportunity. For example, if a fraudsterneeds to establish a collusive networkto defraud a company, he/she may haveto bribe company ofcials to do so. Inother words, when the fraudsters hadthe opportunity to behave corruptly whencommitting the fraud, they did so; it wasnot a matter of necessity or motivation.This suggests that personal attributescould be more important than thebusiness environment as a determinantfor introducing corrupt behaviour into thefraudsters prole.

6 KPMG Report Corporate Fraud in Latin America 2008-10, published in 2011.

Ultimately, it is a tough challenge toinvestigate cases and to deter bribery andcorruption in foreign countries. For manycompanies it is difcult to get to the otherside of the world and to fully appreciatethe risks in local environments.Phil Ostwalt Global Coordinator for Investigations for the Global Forensicpractice at KPMG.

Figure 1





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Personality and capabilityNext, we consider aspects of a fraudsterspersonality and capability. We rstconsidered factors relevant to creatinga rationale for frauds involving corruptbehaviour and found that emotionalmotivators (such as anger, fear andresentment) were rarely mentioned asa rationale for the fraudsters conduct.Some of the emotional motivations are

reected in Figure 2.

Turning to the personal traits andability of the fraudsters in the cases weinvestigated, we rstly grouped togetherobservations of their personality andpresence.

Given the high proportion of fraudstersthat are extroverted, friendly, highlyrespected, and so on, it is hard toimagine that these attributes could helpidentify a fraudster with a propensity

toward corruption. Furthermore, alarge proportion (39 percent) of all 596fraudsters was highly respected by theirpeers. The fraudster we encounter isusually the trusted manager or employeein nance; when revealed, most peopleare surprised, nding the behavior totallyout of character, says van Heerden. InFigure 3 we reect some of the attributesindicating a trusted person like the onereferred to by van Heerden.

Sense of anger

Sense of being under remunerated

Sense of being under valued

Sense of fear13%17%

14%

7%

Figure 2

Figure 3


FriendlyExtroverted Highly respected Impressedas intellectual

Substantivebusinessman

39%33% 35% 23%22%





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Greed, reective of a higher level ofmoral turpitude, and personal gainwere the most prevalent personal traitsdriving the fraudsters conduct in caseswhere there was corrupt behaviour.When considering all the 596 fraudstersinvestigated by KPMG member rms,personal gain on the part of the fraudsterwas observed in 47 percent of thefraudsters and greed in 42 percent.

Therefore, when there is a weakeningof internal controls and of governance,ordinary people may become susceptible

to greed and to ideas of personal gain.Such people may become marginallymore prepared to introduce corruptbehaviour into the fraud they committhan they would otherwise. What italways comes back to is that fraud isabout people, what they want and howmuch resistance they face. This usuallycomes down to pursuit of a lifestyle,what is culturally acceptable and the

quality of a companys defenses, saysSukdev Singh, Executive Director ofForensic for KPMG in Malaysia.

Figure 4

Reckless dishonestly and collusion

Because I can

Sense of being superior

Greed

Personal gain

47%

42%

36%

31%18%





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The changingface of fraudOrganizations must adapt to the fraudstersever-changing prole

There is no single template for fraud andthere is no single, unchanging face of thefraudster. The crime and the perpetratorwill vary depending on the relativeimportance of the three fraud driversand capability of the fraudster notedearlier, and this is often the reason whyit is difcult to detect fraud. We do notsee one personality prole that commitsfraud; all types of people commit fraud

if the opportunity presents itself, saysNigel Layton, Partner, Head of Forensic,Risk Consulting at KPMG in Russia andthe CIS. Lem puts it another way: Ourexperience shows that most people cancommit fraud if confronted with the righttrigger.

Given the rather chilling nding that mostpeople are capable of committing fraud,it behooves the organization to make itas difcult as possible for the fraud tooccur. There are no indications as yetthat the prole of the fraudster is aboutto change radically in the near future; itcould be anyone, depending on who hasthe opportunity on the day. The key tounlocking a companys fraud risk is ndingways to change behavior, says Ghosh.One important change in the prole is the

expanding role of collusion, as we see inthe next section.

Collaborators, insiders and outsidersSolos are a tough act. Many fraudstersmay prefer to work alone, because theydo not have to rely on others to keepquiet and to share the spoils with, butmost fraud requires collaboration. Thefraud is often toocomplex for oneperson to execute;it requires othersto turn a blindeye, or to providepasswords orfalsify documents.A full 70 percentof the 596fraudsters KPMGprofessionalsanalyzed for thisreport acted inconcert with othersand, of these, 56 percent involved 2 to 5other people. Three quarters of fraudstersinvestigated acted as the principal.

Collusion takes many forms; it occursboth inside and outside organizations.Third-party fraud can be particularly hard to

uncover. We frequently see agents or thirdparties like customs agents pay a bribeon behalf of a company, then invoicing forapparently legitimate services to refundthis outlay. The invoice to the companylooks like a legitimate fee for services so itis difcult to detect, says Layton.

When a fraudster colluded, 21 percent ofthe frauds wereembezzlement,compared with27 percent whenthe fraudsteracted alone.Procurementfraud was thesecond mostcommontype involvingcollusion, with19 percent. Fraudinvolving collusiondoes more

nancial damage, too. Thirty-three percent ofcases involving collaboration entailed a totalcost to the victim organization of more thanUS$1 million. For solos, 24 percent involvedmore than US$1 million.

A full 70 percent offraudsters in our surveyacted in concert withothers and, of these,

56 percent involved 2 to5 other people. Threequarters of fraudstersinvestigated acted as

the principal.




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7 Third-party risk management: What you dont know about your business partners can hurt you , KPMG 2013

Collusion appears to be a growingtrend. The proportion of cases involvingcollusion rose from 32 percent in the2007 survey, to 61 percent in 2011 and 70percent in 2013. Regionally, however, thepicture is less clear-cut. Between 2011and 2013, there was an increase in theproportion of cases involving collusionin the EMA and Asia-Pacic regions, butnot in the Americas. Collusion tends to

be higher in countries where businessis often driven by social relationships,such as Africa and parts of Asia. Butin more patriarchal places, fraud isoften committed by senior personnelinstructing their underlings to carry outillegal transactions. People sometimeshelp perpetrate a fraud not for anypersonal benet but because they aretold to, says Jamieson.

Insiders and outsiders

An important form of collusion isbetween the insider and the outsider,especially when it is procurementfraud, such as inating invoices. Indeed,many organizations fail to conduct duediligence of their suppliers and corporatecustomers. 7 The ultimate defense intodays environment is to ask whether you

are doing business with and through peopleyou can trust, says Plavsic. For 43 percentof fraudsters, the collusion involved bothinsiders and outsiders, and for a further19 percent, the collaboration consistedof a sole insiderand one or moreoutsiders. KPMGrms investigatorssay that in most of

these cases whereinsiders worked withoutsiders, it was theinsiders who tookthe lead, since he/ she tends to identifythe opportunity andto know the softspots in a companysdefenses. Indeed,more than 42 percentof fraudsters had

worked for the victimorganization for morethan six years.

Corruption was a common element incases of collusion; we found 29 percentof collusion-related cases involved bribery(which cannot be present when people

act alone). There was also a disparity inthe method of detection. Solos werepredominantly detected by managementreview (27 percent) and by accident ina quarter of the cases. When there was

collusion, the topfraud detectionmethods were byanonymous informaltip offs (22 percent)

and by formalwhistle blowing(19 percent).

If cyber fraudbecomes moreimportant, asseems likely, itremains to beseen whetherthe prevalenceof outsiders willgrow. In theory,more hackers willbe looking for the

weak points in organizations defenses,but they could be insiders just as muchas outsiders. We now turn to the growingrole of technology in fraud.

Fraud involvingcollusion does more

nancial damage, too.Thirty-three percentof cases involving

collaboration entaileda total cost to the

victim organization ofmore than $1 million.For solos, 24 percent

involved more than $1

million.




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Adventures incyber spaceNew technology has created novel types offraud behavior

Cyber security has become a buzzwordat an alarmingly rapid rate. Much of thepublicity surrounding the term has focusedon reports of government attempts 8 to impede the development by othergovernments of nuclear weapons andsimilar strategic events. But companiesnd themselves increasingly vulnerableto cyber attacks, many of which, we mustassume, go unreported. The worrying

thing about cyber-attacks and high-techfraud is that it is so easy for perpetrators togain access; many companies dont evenknow it is happening, says Vlasman.

Organizations, corporate or otherwise, arestruggling to keep pace with the growingtechnological sophistication of hackers.While some sectors are better preparedfor cybercrime than others, companiesthat have experienced high-prole cyberincidents do not necessarily appear in abetter position to deal with future attacks.These companies are also struggling withhow to manage this risk proactively, saysOstwalt.

A few years ago, hackers were motivatedby political objectives and disruptedcomputer networks to make an ideologicalpoint; but its only a matter of time untilfraudsters harness the full power oftechnology to enrich themselves andcriminal organizations, unless legitimate

organizations take steps to defendthemselves.Computer and networktechnologies make it possible for white-collar criminals to operate more efcientlyand with less risk; it eases access,effectively lowering barriers for a newgeneration of fraudsters, says dil Grdil,Head of Risk Consulting for KPMG inTurkey.

Growth in storeAt this point, the scale of detectedcyber fraud 9 appears to be small. Of thecyber-related crimes we analyzed, mostoccurred by way of methods used suchas infections of computer systems withmalware, attacks on computer networksand so on. Weak internal controls oftenfacilitated the fraud which comprised,inter alia, fraudulent nancial reportingand misappropriation of assets. Thefraudsters were mostly employed by thevictim organization, mainly in IT, but alsoin nance and operations. They ranged inseniority from staff level to executives,were aged between 18 and 55 years, andwere employed by the organization forbetween one and six years. In most casesthey also acted in collusion with others,who were also mostly employed by thevictim organization.

Interviews with member rmsinvestigators suggest that cyber fraud is

likely to become a rapidly growing problemfor organizations and will take place ona much greater geographical scale thanbefore. Cyber crime has increased andwe expect cyber-attacks and high-techfraud to grow exponentially, says Lem.

One method of defending againstcyber crime is to develop strong ITsystems designed to detect hackers andprevent them from damaging internalinfrastructure or stealing data. In Italy, likeelsewhere, there has been a tremendousincrease in cyber-attacks, says PasqualeSoccio, Forensic Associate Partner, KPMGin Italy. In a business world reliant ontechnology, if a company does not havea robust IT security system to protectagainst attack, even internal attack, ithas a really big problem. A strong ITsecurity system is a prerequisite to doingbusiness. A lot of organizations, however,have been slow to build their defenses.Many companies fail to develop adequatedetection or warning reports to providealerts on unusual transactions in thesystem, so it is difcult to detect and trackunusual activities, says Rex Chu, ForensicDirector at KPMG in Taiwan.

Given that it takes an average of threeto ve years to detect fraud and thatcyber-related crimes are so novel, itmay be some time yet before cyber

8 Stuxnet, for example, is a computer worm discovered as recently as June 2010 that is reported to have beendeveloped by the US and Israel to attack Irans nuclear facilities.

9 There is no commonly accepted denition of cyber fraud. Fraudsters have been using computers to help themperpetrate their crimes for decades. This is computer-assisted fraud. Cyber fraud requires a quantum leap inthe technological capability of the fraudster, including the ability to decipher heavily encrypted data and breakthrough highly sophisticated computer rewalls.




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fraud has a signicant impact on ourstatistics. While investigations dontyet show high levels of high-tech fraudor organized cyber crime in offshoremarkets, global trends make it seema question of time, says CharlesThresh, Managing Director of KPMG inBermuda. We expect to see mobiletechnology change not only the wayfraud is perpetrated, but also how money

laundering takes place.This makesit difcult to form a prole of cyberfraudsters. The typica l hacker may wellbe in his/her early twenties, but this mayhave little bearing on the age of insidefraudsters who are adept at inltratingcomputer networks. It may turn out thatthe average age of cyber fraudsters islower than for other types of fraudsters.Or we may nd that senior managerscollude with young hackers working onthe outside.

Ostwalt says that ultimately, thefraudster of tomorrow will depend on theopportunities of the day. Two decadesago, illicitly taking money from, say, a bankwas usually accomplished by a closely knitgang, sometimes using violent methodsor forged signatures to achieve their ends.The opportunities of today to take moneyfrom a bank have been transformed by the

internet, smart devices and the ability toanalyze vast amounts of data.

In the future, it will still require a groupof people operating in concert to commitfraud, but the technological tools willchange. A forger is no longer neededin such a group, but a person who canconstruct a phishing email. A plausibleperson is no longer needed to presenta stolen cheque at a bank teller, buta hacker who can access a protectedcomputer network. Perhaps humanfeatures and emotions will no longerbe a signicant part of the prole;instead, electronic features, signaturesand behaviours may be all that a victimorganization will know of the cyberfraudster. To unravel the frauds ofthe future, the best investigators willbe those who are able to reduce largeamounts of data to identiable eventswith good technology solutions, operatingseamlessly across borders and with goodcorporate intelligence capability to givethem quick historical and geographicalreach, says Dan Friedman, leader ofKPMGs Investigations Network in theEurope, Middle East and Africa region.

The cyber criminal may strike atthe heart of the protection taken byorganizations and perhaps use those

same passwords and encryptiontechniques to commit the crime. Thekey change led by technology is theease with which intellectual propertycan now walk out of an organization.Companies do not seem to realize howexposed their systems are to loss ofsensit ive information, says NiamhLambe, Director and Head of Forensicfor KPMG in Ireland. The environment of

computers, the Cloud and the internetmakes cyber fraudsters even moreelusive than before. This behavior differsfrom what investigators are used to,and it is something they will have toadapt their methods to. But even cybercrimes are still likely to be driven bythe same psychological proles foundpreviously; only the behavior may havechanged. In the next 3 to 5 years, fraudrisk will be affected by the growingreliance on IT and new technologies like

mobile payments for every aspect of thebusiness. The old fraud risks will still bearound; all we are doing is layering onmore areas of risk, says McAuley.

Modern criminal organizationsCyber crime is likely to become agrowing area of interest to criminalorganizations; they are already becomingmore sophisticated technologically, saysOswalt. He notes that there is a black

Many companies say they have systemsin place, but inltration needs only oneor two aws in the system and yearsof innovation is lost and stolen by acompetitor. You cannot put a price onpreventing these lost opportunities.

Alex Plavsic

Head of KPMG Forensic in the UK




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market for stolen intellectual propertyand that criminal groups are involved init. Organized crime is getting better atextracting money from corporations. Inrecent months member rms have seen arise in payment diversion fraud, where thefraudster relies on new or relatively naiveemployees to change vendor paymentdetails to divert payments to offshore

destinations, says Plavsic.Cyber fraud would seem to be a logicalstep. Organized criminals go aboutwhite collar fraud in a slightly different

way, using sophisticated technologyand placing people in organizations toobtain information and perpetrate fraud.The quintessential internal fraudster isnow backed by organized crime, saysdel Castillo. Unfortunately, the scaleof involvement in fraud of all kinds bycriminal organizations is hard to gauge,because it is so difcult to detect. Only

15 of the 596 fraudsters colluded withcriminal syndicates, 13 of them with bothinternal and external collaborators. Also,13 of them involved the misappropriation

of assets. Organized criminal groupscontinue to perpetrate the kidnapping ofcorporate executives, especially in LatinAmerica and Africa, but there is goodreason to believe that in many parts ofthe world they will extend their reach byengaging in cyber fraud.

The Cyber Crime Underground: A Services ModelAdvances in technology coupled withcorporate and consumer utilizationse-services are yielding signicant gainsfor the organized and disorganizedcriminals. Recent crimes around theworld illustrate how the traditionalbank robbery is evolving into a solelycyber- crime approach, resulting inlower risk, anonymity and signicantlygreater nancial gains. In mostinstances, organized criminals focustheir attention on the utilization ofdiversied services offered in the cyberunderground. Underground servicesinclude: botnets for hire ( criminalISPs made of hundreds of thousandsof infected machines) enabling usersto hide their true identity and toemanate from most any city in theworld; malware (malicious software)written for criminals by criminals thatare coded to run undetected by virussoftware and rewalls and focused onstealing identity credentials (such asuser name and passwords and creditcards; hackers for hire for speciedcorporate or device targets; criminalcloud services (bullet proof hosting)

leased by criminals for storageof stolen identities or intellectualproperty; fake webpages phishingcampaigns etc; and money mule andmoney laundering services.

For nancial institutions, bank accountsand credit cards are the main target.In a crime committed in near real-time at multiple locations throughoutthe world simultaneously, criminalsrelied upon a combination of uniqueATM system knowledge, processesand the technological prowess of theunderground outlined above.

The hackers gained access to the banksdatabases to compromise 100s of creditcards linked to seemingly legitimatebank accounts. Capitalizing on apparentinsider assistance, the hackers wereable to gain remote access to a terminalto increase the daily ATM withdrawal

limits on each of the cards to morethan US$100,000. By exploiting thisweakness in the banks IT security,the hackers essentially created theavailability of fake money whichcould then be accessed throughappropriated coded magnetic stripcards via ATMs around the world.The nal step required the criminalsyndicate to use money mulesto make cash withdrawals from theaccounts at more than 100 ATM

machines across the world. Within afew hours more than US$45,000,000was withdrawn unchallenged. As of thiswriting the true losses are in excessof US$100,000,000. Knowledge of

technology and the resources of theorganized cyber criminal undergroundmade this global crime possible.

Is this a foretaste of things to come?

Yes, and more. Criminals are actingunilaterally and in concert by buyingand leasing services of the cyber crimeunderground enabling less involvementin the criminal chain and increasingubiquity. Highly competent hackersfor hire are likely to be working withleased high-end server farms that haveseemingly unlimited computing power.In the near future or now it is likely thatseeker bots, enhanced by self-learningand self-replicating articial intelligence,

will be created to continuously testorganizational cyber infrastructure tond the hole in the fence. On ndinga gap, the bots may morph into anagent that surveys the landscape ofthe newly penetrated site to determinethe potential for fraud. It may then launcha highly specialized attack bot, adaptedto a victim organizations type and size,infrastructure setup, data volume andother parameters. The bots then mayremove assets in hidden or encrypted

containers to a single-use, anonymous,virtual delivery location, where theorganized crime network can collectthe proceeds. The criminal becomesinvisible.




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Culture ofcorruptionThe impact of national traits on fraudand detection

In some countries, offering gifts is anormal part of business practice, whereasin others it is considered bribery. Toa large extent, culture inuences ouractions and determines what we considerethical and compliant behavior. Dueto different parameters set in differentnational cultures, a person in China,for example, might have a differentunderstanding of fraud than someone in

North America. Local employees andbusiness partners are bound to have adifferent perspective on ethics. While giftsand related parties may be fraught withrisk elsewhere, for many places in theAsia-Pacic region they are an importantpart of building a relationship and doingbusiness, says KPMGs Forensic practicein China. Therefore, it is interesting tolook at the prole of a fraudster from acultural perspective. To examine nationaldifferences in fraud patterns, we analyzed

the results from six countries where 20 ormore fraudsters were reported: Germany,the UK, Czech Republic, South Africa, Indiaand Canada.

In general, the variables regarding theprole of fraudsters we investigatedwere broadly similar across the differentcountries. Most fraudsters tend to be36-45 years old in India, Canada, SouthAfrica and Germany, and 46-55 years old inCzech Republic and the UK. The majority offraudsters in all countries had completed

tertiary education and was employed bythe victim organization for more than sixyears, except for Czech Republic wherethe fraudsters were equally split betweenfraudsters that were employed betweenone and four years, four to six years andmore than six years. In India, by contrast,the majority of the fraudsters wereemployed for a period of one to four years.But there were more people committing

fraud after working for the victimorganization for only one to four yearsin the UK, Canada, Czech Republic andIndia, than in South Africa and Germany.This could be due to a higher level of trustawarded to the individual in the rst fourcountries.

The results showed that the mostcommon department where fraud wascommitted in South Africa, India andCanada was Operations, with largenumbers of cases of fraud committedin Finance and Procurement, as well asthe Executive ofce in the UK, Germanyand Czech Republic. Similarly, Finance,Operations, and the executive suitewere among the three most commondepartments for fraudsters to work inamong the six countries. The level ofseniority seems to have a mixed impacton the incidence of fraud. In the UK,Canada, Germany and Czech Republic,the majority of fraudsters were executivedirectors. There may be less internal

checks on directors as they are awardedgreater responsibility and trust. In Canada,there was a fairly even distribution offraud, implying that the level of senioritymay not play a large role in the ability tocommit fraud, whereas in South Africa andIndia the majority of fraudsters were inmanagement.

Type of fraudWithin all countries there were morefrauds committed with multipletransactions than with single transactions;the latter was selected a maximum of twotimes per country. Of the six countriesCanada was the only country where allthe frauds were committed with multipletransactions. Where frauds are committedwith multiple transactions the fraudsteris more likely to be caught, which couldindicate a bias in the results, as once-offtransaction fraud may go undiscovered.The time frame for multiple frauds tendedto be one to ve years within all countries.In this time frame there was an averagetotal cost to the victim organization ofUS$50,000-$200,000 in all countriesexcept for South Africa, Canada and theUK, where it was higher.

Misappropriation of assets was the mostcommon type of fraud in all countries bya large margin, of which embezzlement,procurement and payroll fraud werefrequently employed. Revenue or assets




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gained, fraudulent nancial reportingand expenses or liabilities appeared inmoderate to large amounts in all countries.Whether the fraudsters were collaboratingwith others or working alone varied from a91-9 split in Czech Republic to a 48-52 splitin Canada. This implies that fraudsters inCanada, more than in other countries, tryto avoid the risks of having an accomplice.

In the majority of the six countries thecollaborators were a mixed group, exceptfor the UK and Canada. In the UK thehighest number of collaborators werewith internal staff whereas in Canada thehighest number of collaborators were withexternal parties. For Germany, UK andSouth Africa the second highest numberof collaborators were with externalparties, whereas for Czech Republic andCanada the second highest number ofcollaborators were with external parties.For Germany, UK and South Africa thesecond highest number of collaboratorswere with external parties, whereas forCzech Republic and Canada the secondhighest number of collaborators was withinternal parties. The results showed thatfor Canada the ratio between internalcollaborators and external collaboratorswere the same. The ratio of all-male,mixed and all female collaborators wasalso similar across countries except inGermany and India where there wereno instances reported of all-female

collaborators. In the six countries, themost common motivations were greedand personal nancial gain. The resultsalso showed that personal nancialdifculty was a common motive for fraudin Canada, Czech Republic and Germany, whereas offenders in India, CzechRepublic and South Africa tended toseize an opportunity for fraud rather thanplanning in advance.

Detection and consequencesIn the most frequently cited facilitator offraud was weak internal control, whichwas common in all countries. Additionally,reckless dishonesty regardless ofcontrols was most frequently cited in allcountries except for Germany. Collusioncircumventing good controls was seenas a facilitator of fraud in all six countriesexcept Germany. In all countries, exceptfor in Germany and Canada, there wasa signicant amount of fraud that wasdetected through formal whistle-blowing.Germany, Czech Republic, India and Canadadid however, have a considerable numberof anonymous, informal tip-offs. Othercommon forms included managementreview, as well as internal and externalaudit, which are known as more proactivemethods of fraud detection and lead tolower losses as a result.

In general, the consequences of fraudwere similar among the six countries

with dismissal being the highest reportedconsequence to the fraudster. Criminallitigation is often avoided by companiesthat fear the publicity, even thoughreporting offenders to the police canbe a very strong deterrent. In Germany,there was a lower amount of reputationalrisk to the organization than in the othercountries.

Need for nuanceBy comparing various aspects of fraud inCzech Republic, Germany, the UK, SouthAfrica, India and Canada, we see thatalthough their national characteristicsare similar, there are some signicantdifferences that may be due to variationsin culture. As a result, it might beworthwhile for international companiesto adapt their fraud risk managementprograms to conditions in differentcountries. For example, whistle-blowingmay not prove to be effective in cultureswhere revealing information about othersis seen as a negative trait. Similarly, itmay prove benecial to focus deterrenceefforts equally between managementand staff in India, and more specically onexecutive directors in Germany. In the UK,the focus might best be divided equallybetween the Executive ofce and Finance.By tailoring anti-fraud efforts to differentcultures, organizations might improve theirefforts to deter and detect crimes.

Spanish companies should carefullyconsider possible legislative and fraud

risks when entering new markets. Beingunaware of how different cultures andbusiness practices affect a companysoperations, code of conduct, andlegislative responsibilities can be lethal.Angel RequenaPartner, Head of Fraud Prevention and DetectionKPMG in Spain




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Theory ofrelativityHow the prole of a fraudster is affected bythe moral context

In this theme we consider whetherthe ethical context in which a fraudstercommits offences or other misconductaffects the prole of the fraudster.The moral turpitude of the perpetratorof nancial and commercial crimes isgreater when such criminal acts coincidewith, or are facilitated by, bribery and

corruption. Bribery and corruptionthus has an effect on the fraudster sprole. We asked whether elements ofcorruption were present in the fraudsanalyzed in this report and, for 14 percentof the fraudsters who said there was asubstantial element of corruption in theirresponses to this question, we foundthat bribery and corruption were theoffences committed.

When looking globally for environmental

factors that would explain the presenceof bribery and corruption, we found noclear trend. But when we comparedthe cases investigated by KPMGmember rms in the US, China, theCommonwealth of Independent States(CIS, the former Soviet Union) and WestAfrica, more denite trends seemed to

Region

Global US China CIS West Africa

Element ofcorruption in frauds 33 % 24 % 48 % 64 % 67 %Level of regulation 38 % 50 % 50 % 33 % 0%


emerge. In all four countries (or regionsin the case of the CIS and West Africa),elements of bribery and corruption in thefrauds investigated related to the globalaverage of 33 percent, as follows: the US(24 percent), China (48 percent), CIS (64percent) and West Africa (67 percent).

RegulationOur survey was not designed tomeasure actual moral standards, butinstead we asked whether (in theinstances of corruption and bribery beingpresent in the frauds observed in the fourcountries under discussion) the fraudsthat were tainted by corruption tookplace in a highly regulated environment.We found that 50 percent of theinvestigated cases in the US occurredin a highly regulated environment,

50 percent in China, 33 percent in CISand none in West Africa.

The inverse relationship between the twofactors in the table below (the higher theelement of corruption in the frauds, thelower the level of regulation) suggeststhat the institutionalizing of ethical values,

incorporated, say, into a regulatoryframework, may well affect the prole ofa fraudster. This may be the case at leastwith regard to the propensity towardsintroducing corruption into fraudulentacts. Investment is linked to the strengthof nancial institutions and the qualityof governance. Having a company codeof conduct to set ethical standards andpromote a culture of clean business is notjust about fraud deterrence, its a long-term growth imperative, says Ditty.




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EnvironmentalWe then tested the same attributeof the fraudster we observed in the

four countries against environmentalfactors more closely related to thevictim organization. We considered thefollowing factors which are known to besensitive to ethical and moral contexts,corporate competitiveness, marketcompetitiveness and unlimited authorityof the fraudster. The results in the chartto the right show the incidence of thesethree environmental factors in the casesof fraud that included corruption.

The results suggest that there isan inverse relationship betweenthe environment of corporatecompetitiveness and the prevalenceof corruption in the fraudsters proleswith reference to CIS and West Africa,whereas for the US and China thereis a direct relationship. The indicatorsaround an environment of marketcompetitiveness are the same as forcorporate competitiveness exceptfor the US where we note an inverse

relationship. And there appears tobe an inverse relationship betweenenvironments of unlimited authority andthe prevalence of corrupt propensitiesin the fraudsters proles. At a globallevel, we found that 40 percent of thefraudsters proled that had introducedelements of corruption in their frauds,had done so in an environment ofunlimited authority.

These observations suggest that thereare correlations to be found betweenthe behavioural elements of fraudsters

proles and some environmental factorsthat can affect the ethical context of thefraudster. However, the links do not seemto be found everywhere and in somecountries they may not be present at all.We further considered the cases froma personal, non-environmental, pointof view. In this regard we consideredwhether the fraudsters conveyed asense of superiority, which is not anenvironmental factor (see below).

No clear pattern emerges. It seemsprobable that the sense of superiorityis a personal attribute of thefraudsters surveyed, rather than anenvironmental attribute that could shapethe prole itself.

Values and normsGiven the fact that there is no single,unchanging prole of a fraudster, we areskeptical that the trend identied above(between the propensity to introducecorruption into fraudulent actions and theregulated environments observed in the US,China, CIS and West Africa) will consistentlystand the test of time.

For now, in some countries, it seems thatfraud varies depending on the intensity of thedifferent drivers in time and place. It seemsthat the impulses created by institutionalizedvalues and norms shape the prole of thefraudster and that the lack of consistencyregarding time and place highlights theuidity of the fraudsters prole.

Region

Global US China CIS West Africa

Corporatecompetition 23 % 25 % 43 % 33 % 25 %Marketcompetition 29 % 0% 50 % 39 % 33 %Aggressive salesenvironment 31 % 25 % 43 % 28 % 8%Wanting to hidebad news 22 % 25 % 7% 11 % 8%UnlimitedAuthority 40 % 50 % 36 % 33 % 17 %


Region

US China CIS West Africa

Element of corruptionin frauds 24 % 48 % 64 % 67 %Sense of superiority 50 % 43 % 67 % 50 %





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ConclusionThere is perhaps a need to emphasize the following key points gained from the insightsof KPMG rms Investigations leaders in the work they have performed and the trendsthey foresee:

1Increasing vulnerability to outside threats by hacktivists turning theirattention to nancial gain in conjunction with criminal organizations, armedwith technology, seeking both operations disruption and nancial gain.

2The consistent and sustainable upwards trend in collusion betweeninsiders inter se and outsiders which, together with the impact of the pointdirectly above, requires organizations to extend their defending effortagainst fraudsters attention and threat beyond the organizations internalcontrol and systems.

3Corruption and bribery, not a unique event anymore, but more prevalentduring the execution of other white collar crimes, becoming a persistent andestablished part of the contemporary fraudsters prole, improving the abilityof fraudsters to create collusive relationships which have a relative highernancial impact on victims than when fraudsters act on their own.

4Economic instability, volatile capital markets, new technologies andinnovation, new accounting systems, increasing connectedness of the worldin cyber space and a paperless transactions environment create opportunitiesfor people with the necessary criminal motivation and rationale to apply therequired capabilities necessary to gain criminally from these changes.

And while some things will surely change, and we are concerned with the invisibilityof the cyber fraudster, one must not forget the typical fraudster may likely remain thetenured, trusted employee. The one you may never have suspected.right in front ofyour eyes, remaining unnoticed. Forewarned is forearmed.


2013 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.


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We would like to acknowledge the followingindividuals for their assistance:

Elizabeth Cain

Nigel Holloway

Alecia Hope

Victoria Malloy

Theresa Mayer

Lissa Mitchell

Ron Plesco

Kajen Subramoney

Tracey Walker

Estelle Wickham

Acknowledgements


2013 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member rms of the KPMG network are afliated.


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Contact us

KPMGs Global ForensicRegional Leadership

Petrus MaraisGlobal Forensic LeaderT: +27 795159469E: [email protected]

Richard H. GirgentiAmericas RegionForensic LeaderT: 212 872 6953E: [email protected]

Jack DeRaadEMA Region Forensic LeaderT: +31206 567774E: [email protected]

Grant JamiesonAsPAC Region Forensic LeaderT: +85 221402804E: [email protected]

KPMGs Global ForensicInvestigations Network

Phillip OstwaltGlobal & AmericasInvestigations LeaderT: 404 222 3327E: [email protected]

Dean FriedmanEMA Investigations LeaderT: +27 116478033E: [email protected]

Mark LeishmanAsPAC Investigations LeaderT: +61 7 3233 9683E: [email protected]

kpmg.com/fraudster

kpmg.com/socialmedia kpmg.com/app

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individualor entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information isaccurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such informationwithout appropriate professional advice after a thorough examination of the particular situation.

2013 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network ofindependent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has anyauthority to obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have

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