According to a new report by KPMG International, technology was found to be a significant enabler for a quarter (24 percent) of the 750 fraudsters investigated by forensic specialists across 78 countries. By contrast, the Global profiles of the fraudster report reveals that proactive analytics plays an astonishingly minor role in combating fraud, with only 3 percent of the fraudsters being detected in this manner.

“The double-edged sword of technology in fraud is only going to get sharper,” said Stephen Bell, KPMG New Zealand's Head of Forensic and Dispute Advisory Services. “As technology develops, so too do the techniques for fraudsters to use it maliciously. We are seeing limited evidence that organisations are proactively employing technology to prevent it. Threat-monitoring systems and data analytics are becoming essential tools for organisations to identify anomalous or suspicious behavior."

Key findings:

• Anti-fraud controls are not strong enough, and the problem is growing. KPMG’s in-depth survey of 750 fraudsters worldwide found that weak internal controls were a contributing factor in 61% of frauds in the survey. There was a sizeable jump in the proportion of fraudsters who saw an opportunity that presented itself due to weak controls, compared with the previous survey in 2013.
  
• The most effective detective control continues to be ‘Tip-offs, complaints and Formal whistleblowing lines with 44% of frauds detected through this channel. These detective controls are particularly effective where fraud is perpetrated through collusion with others in particular, mixed group with those external to the organization.
  
• While strong controls are important they are not a panacea as 21% of fraudsters were able to disregard them. This was more prevalent where fraudsters had more authority and perceived the risk of being caught as being able to bend or override controls. The study reinforces the importance of assessing an organizations risks embedding effective controls and ensuring they are monitored.
• For frauds in Oceania perpetrators tended to work alone 65% compared to the global average of 38%. This may reflect stronger ethics with it being harder or riskier to get others to collude to commit fraud than the global average.
  
• While less prevalent in Oceania, collusion still continues to be a significant threat to organizations with the prevalence of larger groups >5 people increasing from 9% in 2010 to 20% in 2015. Sixty-one percent of colluders are either not employees of the company, or are employees who work with people who aren’t. Some of them are former employees. This highlights the need for better third-party due diligence of such persons as vendors and customers.
  
• Collusive frauds tend to result in higher loss and remain undetected for a longer period reinforcing the need for the collusive threat to be managed. NZ organizations operating abroad need to be particularly vigilant to the risk of collusion particularly around the risk of corruption given the new Corporate liability offences.
  
• Technology helps both the fraudster and the company combatting fraud. Almost a quarter of fraudsters rely on technology as a major enabler of fraud. Companies, by contrast, could do a great deal more to use technology as a tool to prevent, detect and respond to wrongdoing. A key anti-fraud control using technology is data analytics, a tool that can sift through millions of transactions, looking for suspicious items. But only 3 percent used pro-active anti-fraud data analytics in detection of the fraudsters surveyed.
  
• Cyber fraud, an important form of technology-based fraud, is emerging as a growing threat and many companies are aware of the issue but seem to be doing little about it.
  
• Fraud threats are constantly changing and companies need to conduct regular risk assessments, altering the way they prevent and detect fraud, as needed.
  

KPMG’s survey reinforces a number of findings in the 2016 Association of Certified Fraud Examiners (ACFE) Report to the Nations on Occupational Fraud and Abuse. In this global study a lack of internal controls was noted as the most prominent weakness contributing to the fraud. The ACFE study also noted the correlation between economic loss increasing with collusive frauds and the most effective detection method being through ‘Tips’.

To view additional information about the study, please click here.

Data was gathered from fraud investigations conducted by KPMG member firms’ forensic specialists in Europe, Middle East and Africa (EMA), the Americas, and Asia-Pacific between March 2013 and August 2015. KPMG analyzed a total of 750 fraudsters who were involved in acts committed in 78 countries. The survey examined “white collar” crime investigations conducted across the regions where the perpetrator was known and detailed contextual information on the crime available. It incorporates the observations and views of KPMG Investigations leaders in 81 countries across the world. The report builds on a similar study conducted in 2013.

Stephen Bell
Lead Partner - Forensic
+64 9 367 5834
stephencbell@kpmg.co.nz