Guido van Drunen, head of the forensic practice at KPMG, says that when it comes to corporate fraud, knowing which red flags to look for can help stop the spread of scams.
Guido van Drunen, investigative consultant
Describe the typical business scamster?
He is 36 to 45 years of age, according to a 2008-to-2010 analysis of 348 cases that KPMG investigated for clients across 69 countries. The next most likely age group is individuals who are 46 to 55. Most perpetrators are men. The fact that more men than women commit fraud appears to be linked to the under-representation of women in senior management positions in companies.
What are some other traits?
Our analysis found that individuals with more senior positions and those entrusted with a company’s sensitive data were more able to override controls and perpetrate a fraud. The American Institute of Certified Public Accounts has previously identified management override of internal controls as one of the biggest risks an organization faces. The largest number of perpetrators work in the finance function. The CEO’s office and operations follow as the next areas of highest risk.
What are some common fraud red flags?
• Poor relations with auditors.
• Excessive secrecy about functions and operations.
• Complexity surrounding certain transactions or other processes.
• Incongruent results between the earnings of the company and its competitors
• Increases in profitability that don’t translate to cash-flow improvement
• Large bonuses for certain targets
Combine these red flags with an individual who does not take vacations, shifts blame, refuses promotions and bullies or intimidates colleagues and you have a potential problem.
Give tips on preventing fraud.
Preventing a fraud is significantly less expensive than investigating one. A three-pronged approach is generally prevention, detection and response. The first step to facilitating a strong anti-fraud program is identifying your risks. This can be done through a fraud risk assessment. Once this is completed, the gaps identified can be closed through controls prevention or detection to limit opportunities. There should be regular monitoring of the controls to ensure that anomalies are detected and appropriately addressed. Key factors of any prevention program are professional skepticism, coupled with a strong internal control environment.
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