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Finance managers top company fraud list

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Company fraudsters often get away with their crimes for five years, committing as many as 50 undetected frauds, according to the forensic department of audit firm KPMG.

The firm has analysed 360 cases in which its forensic department has been involved and found that a third of cases involve more than 50 acts of fraud, while two thirds of fraudsters commit acts undetected for between one and five years. One tenth of fraudsters go undetected for more than six years.

The perpetrators of the crimes are most commonly long-serving, trusted managers in the finance department. Most are employed for six years or more when they commit their first act of fraud, and are motivated by greed and the opportunity presented by their position.

The consequences of single frauds can be devastating, according to the research. The total loss is more than €1m in 42 per cent of cases, it said.

"Companies clearly have a challenge on their hands," said Ken Milliken, head of forensic for KPMG in Scotland. "Over 60 per cent of perpetrators are members of senior management, whose status in the company makes it easier for them to bypass internal controls and inflict greater damage on the company."

Aged between 36 and 55, the typical fraudster is male, operating on his own and working in the finance department. He is a manager whose activities are made possible by weak internal controls.

While management reviews caught 21 per cent of instances, the most common way in which companies found out about fraud was through employees who had found out about the activity and informed the company.

"Given the repeated and extended nature of most frauds, companies need to work extremely hard to detect frauds earlier through tighter internal controls, data analytical tools, and more widely publicised fraud reporting mechanisms," said Milliken.

"Recoveries of losses from fraud can take several years to be completed. Prevention, such as introducing ethics and integrity measures at the top management level, is always a more efficient and cost-effective means."

Companies are rarely open about having suffered from fraud. Two thirds of the firms studied by KPMG issued partial information or none at all about the attacks, and in most cases no public authority such as the police were ever informed. Investigations, it found, were almost always private and internal.

Copyright © 2007, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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