KPMG Analysis Identifies Key Fraudster Traits
August 16, 2011 (SmartPros) In more than half the cases, red flags that could have signaled trouble were missed.
A senior employee known as an aggressive workaholic, but who seems stressed, yet rarely takes vacations, declines promotions, and zealously protects his business unit from outside scrutiny while personally handling choice vendors may be up to something devious, according to an analysis of corporate fraud cases investigated by KPMG International’s member firms.
“Knowing the common traits of a fraudster can help employers be better prepared to prevent damaging incidents from happening in their organizations,” said Philip D. Ostwalt, who leads the Forensic Services Investigations Network for KPMG LLP, the U.S. audit, tax and advisory firm.
Ostwalt said an analysis of 348 cases that KPMG investigated for its clients across 69 countries from 2008 to 2010 identified the typical fraudster as:
The report, “Who is the typical fraudster?,” found that 56 percent of the frauds the KPMG member firms investigated had exhibited one or more red flags that should have brought management attention to the issue, but only 10 percent of those cases had been acted upon prior to requiring a full investigation.
Ostwalt said the report identified a series of fraud red flags, including:
In addition, the KPMG analysis found that a fraudster’s traits include:
Companies should consider whether their internal controls and other processes remain relevant as market conditions and internal growth goals change, said Ostwalt.
“Senior management must endorse and support a robust ethics and compliance policy that advocates doing the right thing, provide an easy way for employees to report an issue without fear of retaliation, and conduct appropriate due diligence such as vendor screening and background checks on new hires and those being promoted to material positions,” Ostwalt said. “It can be helpful to conduct pulse checks on how all employees view ethics and compliance within the organization.
“In addition to monitoring potential risks through communications and feedback from employees, senior management must be aware of the unique fraud risks to their company and industry, in addition to analyzing cases brought to their attention for trends on potential future issues or that demonstrate a breakdown in their internal controls processes,” said Ostwalt.
The analysis by KPMG found that the investigations resulted in: