The survey showed that 75 percent of respondents report they have uncovered fraud in their organizations in the last year, compared with 62 percent of executives responding to a similar survey in 1998. Employee fraud occurred the most frequently, according to survey respondents, although financial reporting and medical/insurance fraud were much more costly.

"Companies and their boards are more intent on uncovering fraud and misconduct as a direct result of corporate governance legislation and other mandates, including the Sarbanes-Oxley Act, put in place over the past two years," said Richard H. Girgenti, partner in charge of KPMG's Forensic practice. "As we read in the newspapers every day, an incident of fraud within a company can bring intense public scrutiny, government investigations, loss of market capital and severe penalties, while sending skittish investors scurrying."

Despite heightened awareness and broader implementation of fraud detection controls -- which could include hotlines so employees can report fraud as well as other whistleblower, training and additional anti-fraud programs -- 22 percent of executives surveyed said they do not plan to implement new controls, even though many companies are still evaluating their internal controls as required by Sarbanes-Oxley.

"This finding was regrettable, and may put these companies at greater risk for not only experiencing incidents of fraud and misconduct, but also for facing higher fraud costs and damage to the company reputation when incidents do occur," Girgenti said.

The 2003 survey showed a dramatic rise in internal controls, from 51 percent to 77 percent, as the chief means for detecting fraud; followed by internal audit, rising from 43 percent to 65 percent. Conversely, notification by employees, the chief manner in which respondents indicated that fraud was uncovered in the 1998 survey, rose, but less dramatically, from 58 percent to 63 percent.

"The good news is that more and more companies are taking affirmative steps to prevent and detect fraud within their organizations," Girgenti said.

In fact, the survey found that 64 percent of companies took legal action by bringing civil or criminal charges against the culprits, compared with just 37 percent five years ago; and 64 percent notified a regulatory or law enforcement agency after finding fraud, compared with 34 percent responding to the previous survey.

The survey also found that collusion between employees and outside third parties -- a vendor organization offering kickbacks if a company employee buys its product, for instance -- is a growing problem, with almost half (48 percent) of respondents citing collusion as contributing to fraud, compared with 31 percent in 1998.

Despite the increase in fraud, 43 percent of corporate and government executives are predicting a decrease in fraud incidents in the next 12 months, with just 7 percent expecting an increase.
 
"This statistic suggests that there is optimism that current anti-fraud measures will be effective. However, it also raises some concerns," Girgenti said. "Companies may be lulled into thinking that they now have a handle on the problem. In reality, fraud and misconduct is a pervasive and insidious problem that requires companies to maintain continuous vigilance in assessing and improving their controls and programs to detect, prevent and investigate its occurrence."

Girgenti said the survey's findings reiterate the increased demand for forensic skills.

KPMG's 2003 report surveyed executives at 459 U.S. public companies, with revenues of more than $250 million, and at state and federal government agencies.