Fraudsters and how to find them | KPMG | UK
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Fraudsters and how to find them

Fraudsters and how to find them

There’s no getting away from fraud - we consider the circumstances they thrive in and the mechanisms that can help stop them.


Partner, Risk Consulting

KPMG in the UK


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Fraud is a major business risk that not only carries a financial cost – estimated at more than £50 billion a year in the UK1 - but is hazardous to companies’ reputations. In response, KPMG regularly conducts a worldwide investigation into fraudsters, the conditions they thrive in and the mechanisms that can stop them.  

Our research shows typical fraudsters have some unexpected characteristics. One is that they are most likely to have worked with target companies for more than six years. A second is that senior employees are more likely to commit the most damaging frauds – those costing US$5 million or more. A third is that fraudsters are often characterised by an autocratic personal style and a sense of superiority. These traits are particularly dangerous in senior executives, who are best placed to circumvent internal controls.  

Another startling finding is the importance of collusion. It is almost twice as likely for fraud to involve group collaboration as individual initiative. Collaborative fraud is also more financially harmful; 34 percent of collusive frauds cost more than US$1 million, compared with 16 percent of solo frauds. Most shocking of all, perhaps, is the frequency of external collaboration. Over 60 percent of collusion involves an external party.

The good news is that companies of all sizes can do a lot to prevent and detect fraud.

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To begin with, they should remember while fraud is changing, many of the circumstances that allow fraud to occur have not. Weak controls are a factor in three-fifths of frauds and individual with excessive or unchecked power remain best placed to circumvent internal controls.

Companies should also realise fraud risks are likely to increase as they develop stronger digital links with other organisations. A majority of CEOs plan to pursue collaborative growth over the next few years and Chief Risk Officers will need to ensure vendors, customers and service providers are being subjected to appropriate due diligence and monitoring.

Next, businesses should fight fire with fire. Technology is now a significant enabler for 24 percent of frauds, and cyber fraud is emerging as a major threat. However, only 3 percent of companies pro-actively detect fraud using data analysis. Threat-monitoring analytics are comparatively new, but offer exciting potential. By creating risk profiles, they can add focus to detection efforts. Many financial institutions are already using analytics to highlight suspicious trading patterns.    

Perhaps most importantly, companies need to instil a culture that supports their control environment. Our research shows tip-offs and whistle-blowing detect 53 percent of collusive frauds. A culture that helps employees to identify fraud and gives them the confidence to respond appropriately makes collusive fraud very difficult. In contrast, a top-down culture that prioritises quantitative goals alone is much more likely to create the conditions for fraud.

In my experience, risk professionals often struggle to accept evidence of fraud, even if it is compelling. Companies need to make informed, fact-based assessments of risk, listen to what data and employees are telling them, and avoid dismissing legitimate suspicions. Fraudsters are human.  They slip up. If something doesn’t look right or is simply too good to be true, it should be given a closer look.

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