Financial Fraud Barometer: How Much Have You Lost?

Lucas Gilmore, “Big 4″ observer
February 25, 2011 /

The latest “Fraud and Misconduct Survey” conducted by KPMG in New Zealand and Australia showed aggravated losses suffered by organizations from both internal financial fraud and internet-based electronic funds transfer (EFT) facilities.

Based on the responses drawn from 214 individual organizations, financial fraud losses climbed twice the $1.5 million average in 2008 results to $3 million in 2010. The survey was conducted from February 2008 to January 2010.

Gary Hill, Partner-in-Charge at KPMG Forensic who authored the report, said the results are even more worrying because the respondents admitted they were probably picking up roughly one-third of the total magnitude of financial fraud that have cost them billions of dollars every year.

“Add to this the fact that our survey covers only a relatively small proportion of the entities vulnerable to fraud, and it becomes clear that fraud is costing Australian and New Zealand organizations billions of dollars a year,” Hill said.

The report showed that of the total financial fraud cases recorded during the survey period, 61 percent have not been recovered by victim organizations. There have been 165,000 separate cases of financial fraud taken into account by KPMG during the survey period, mostly occurring in the banking, finance and insurance sectors.

Of this figure, 68 percent by number and 98 percent by value of financial fraud cases were “inside jobs” excluding the cases in the banking and finance sector.

When the survey was in progress, more than 50 percent of respondents suffered at least one financial fraud while 75 percent of large organizations fell prey to similar fraud.

KPMG attributed these cases to inside knowledge of fraudsters and weak internal controls. The report noted that the typical financial fraud cases recorded were simple frauds whose modus operandi is “preventable and/or detectable through the use of appropriate internal controls.”

KPMG further found that in 38 percent of financial fraud cases, respondents admitted they ignored “red flags” warning of something irregular.

On the other hand, financial fraud losses occurring from external attacks were estimated at $273 million. The most usual means of this kind of fraud were credit and debit cards, irregular lending and bogus insurance claims.

The lengthening time spent in detecting a financial fraud (372 days in 2010 while only 342 in 2008) and the increasing number of people committing it suggest that “in many organizations the approach to fraud prevention and detection leaves a lot to be desired,” KPMG concluded.

 

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