Major fraud has increased three-fold over 15 years. The average cost of fraud stands at $3 million per organisation, and we are talking about only that which is detected. But somehow, senior managers still do not view fraud as a serious problem.
Am I the only one who’s baffled here?
The bi-annual KPMG Fraud Survey, surveying 281 private and public sector organisations across Australia and New Zealand, estimates that in the last two years, a whopping $373 million was lost to fraud, with roughly two in five organisations surveyed experiencing fraud. As expected, the financial services sector was the hardest hit, suffering $322 million in fraud losses.
However, despite all this evidence that fraud is on the rise, only 15% of survey respondents see fraud as a key risk for their organisation.
“Fraud, bribery and corruption are not top of mind for senior management. Executives continue to ignore the problem despite knowledge that fraud is on the rise,” said Gary Gill, KPMG’s National Head of Forensic.
“The $373 million figure is of particular concern,” said Gill, “as we believe it is only a fraction of the actual cost of fraud as many incidences of fraud go undetected or unreported.”
Up to 21% of survey respondents indicated that their organisation ignored early warning signs of fraud. This shows that merely implementing robust internal controls is not a foolproof way of preventing fraud.
“We see many cases of fraud where management has ignored early warning signs of accounting irregularities, resulting in the problem festering, ultimately leading to a significant loss which could have been averted had they chosen to investigate initial red flags,” explained Gill.
The survey also shows a significant increase in major frauds perpetuated by insiders, from 65% in the 2010 survey to 75% in the current survey; and an increase from 23% to 29% in instances of internal fraud involving collusion. What’s more, collusive fraud is fast becoming a significant problem for many organisations, particularly where collusion takes place between employees and external parties, as collusion protracts the time taken to detect the fraud.
Technology is also playing an increasingly significant role in fraud, changing not only the level but also types of fraud.
“Increased connectivity and social media proliferation has made organisations more susceptible than ever to cyber attacks. Organisations must be as sophisticated in their cyber security as the hackers are in their methods. Cyber security must be a top priority in all risk management strategies,” said Gill.
