Insiders commit almost half company frauds

Almost half of company frauds are perpetrated by employees. Research by KPMG also revealed that senior management are the biggest offenders.

Just under 40% of fraudulent cases were committed by management and a further 10% by company employees, according to KPMG’s bi-annual fraud barometer, which tracked all 283 fraud prosecutions in UK Crown courts in 2013.

The barometer showed an increase in criminal prosecutions related to fraud albeit with a lower average case value of €3.5m compared with €7.37m over the past five years.

KPMG UK forensic partner Hitesh Patel said the proportion of insider crimes was higher within the corporate environment compared with financial institutions, which were generally targeted more by organised criminal gangs for intellectual property and financial capital.

Speaking to StrategicRISK, Patel said: “In the corporate environment, the empirical evidence shows that 70%-80% of the threat is from within.

“It’s your employees and senior management, but it’s the senior people that cause the most damage purely because they have been there the longest, have a position of authority and are able to engineer the environment in order to conceal their tracks.”

Patel believes the economic downturn has played a major role in detecting cases of insider fraud, while conversely motivating employees, particularly within senior management roles, to commit such crimes for personal self-preservation.

He said: “The economic downturn has essentially made fraud more visible by operational changes and cost cutting for instance. The downturn is also driving the wrong behaviour due to personal pressures.

“As businesses change their strategies, one of the first things companies tend to do is reduce headcount and often those removed are of middle management who are the eyes and ears of checks and balances. By removing them, you have lost the controls that existed and people will try and do the wrong thing to survive.”