Firms fail to use technology in fight against fraud

Jun 03, 2016

It reveals that while a quarter of fraudsters use technology to rip off companies, only 3% of businesses detected illegal behaviour using data analytics.

Almost one in four technology-enabled frauds was caught accidentally, demonstrating that companies are failing to harness new methods of fraud detection.

Chris Wheeler, forensic director at KPMG’s Milton Keynes office, said: “As technology becomes more advanced, so too do the schemes to use it maliciously. And while it is clear that fraudsters are all too comfortable using technology to perpetrate a fraud, we are seeing little evidence that companies are doing the same in response to prevent it. 

“A shockingly small number of companies have invested in threat-monitoring systems and data analytics, which can shift through data looking for suspicious items and help businesses uncover and question anomalous or suspicious behaviour.

“Social media is also an important weapon in the fight against fraud  and needs to regularly monitored by companies to uncover suspicious behaviour. Fraudsters’ urge to brag, show off assets and reveal their business connections can prove insightful as they unwittingly share too much online.”

Effective data analytics can be used by businesses to understand patterns of behaviour and build the risk profile of employees by aggregating unusual conduct such as incomplete expense submissions, authorisations consistently below thresholds, and high levels of changes to standing payment data.

KPMG has invested in technology that links data from across the firm to flag potential risks.

The technology allows the firm to identify hotels and travel booked via corporate accounts which may be inconsistent with its travel policy.

It can also monitor key words in emails, texts and corporate social media systems to look for trends. This data is can then be used to identify changing behaviour.

Mr Wheeler said: “In the fight against fraud, technology is a key enabler but is just one of the core elements. It relies on experienced multi-disciplinary teams of accountants, investigators and technologists working with data scientists to create the algorithms that drive fraud analytics.”

KPMG’s analysis found that companies are using traditional methods to detect fraud, and remain reliant on employees or third parties such as suppliers and customers to report suspicious behaviour.

A total 44% of fraudsters were caught as a result of a tip or whistleblowing hotline, highlighting the importance of enabling individuals to feel safe to step forward without fear of retribution, and giving them the means to do so.

Mr Wheeler said: “Without anyone to keep their power in check, these executive fraudsters can commit high value fraud and remain undetected for a significant amount of time. 

“They pose a double threat to their employer: not only can they use their authority to override controls but they can also order employees to perform tasks to assist or cover their misdeed, making it harder to detect.”

The existence of weak controls within businesses remains a growing problem. KPMG’s research revealed cash-strapped companies are failing to invest in stronger anti-fraud controls, leaving them vulnerable to opportunistic white collar criminals. In 61% of cases weak internal controls in their business presented an opportunity for the fraud, compared with 54% in 2013.

 

PROFILE OF A FRAUDSTER

• Aged 36 to 55 (68% of fraudsters investigated).

• Male (79%) and holds a senior position. 34% are executives or non executive directors; 32% are managers.

• Has been with the company for at least six years (38%).

• Have unlimited authority in their company and able to override controls (44% of fraudsters investigated).

• Personality traits: autocratic (18%) and possesses a sense of superiority that is far stronger than a sense of fear or anger.

• Is likely esteemed, with 38% of fraudsters being described as well-respected in their organisation.

Personal financial gain and greed was the predominant overriding motivation for fraudsters (66%).

 

Other key findings

      The most common ‘white collar’ fraud was the misappropriation of assets – embezzlement and procurement fraud, which was committed by 47% of fraudsters investigated by KPMG.

     Fraud is more frequently perpetrated in collusion with others than alone (62% against 38% respectively). 

     Women were less likely to collude: only 45% of the females colluded with others compared to 66% of males.

       44% of fraudsters were detected as a result of a tip or a complaint; a further 22% were detected as a result of a management review. 

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