Keywords: Fraud, procurement fraud, finance shared services, payment diversion, mandate fraud, KPMG fraud barometer, employee fraud

Old-fashioned con tricks rife in back-offices

Sarah Feurey | News | 23 January 2013

• Print
•        

While rogue traders and professional criminals have been behind the fraud ‘super’ cases seen in recent years, KPMG’s latest bi-annual ‘Fraud Barometer’  has shown a rise in individuals committing more traditional scams such as Ponzi schemes, check fraud and procurement fraud.

Hitesh Patel, UK Forensic Partner at KPMG, says: “ In the last few years we have become used to sophisticated frauds at eye-watering values. While the total value of fraud has dropped substantially in the absence of so-called fraud ‘super’ cases, the old-fashioned con man hasn’t given up his tricks.”

The analysis also shows that insider fraud is hitting corporates hard. Fraud perpetrated by either management or employees accounted for 80% of the financial loss through fraud experienced by UK businesses in 2012. The number of cases involving employee fraud rose to 35 in 2012, up from 22 the year before.  Their value has also seen a sharp climb, more than doubling from £12.0m in 2011 to £25.1m over the past 12 months. The report shows procurement fraud increased to £21.4m in 2012.

The report highlights case studies including a finance department employee stole hundreds of thousands of pounds to fund an extravagant lifestyle; the discovery led to the company being placed into administration and the loss of all twenty of her colleagues’ jobs;

Shared services professionals need to be aware of these basic fraud threats, as well as the new and complex threats.

KPMG reports many of their clients being approached by suppliers purporting to have changed their bank details at present, and requesting payment to the updated account. This type of fraud also called ‘Payment Diversion’ or ‘Mandate’ fraud, revolves around fraudsters posing as employees of an organization’s supplier and can pose a significant threat to shared services organizations and centralized procurement and finance functions.

Additionally, Patel says, “the banks, perhaps focused on regulatory efforts to combat financial crime at the front end, such as money laundering, are also enduring an increase in old-fashioned back office fraud.”

The report suggests that there is some good news in the fight against fraud.  Over the past 12 months the number of cases perpetrated by professional criminals fell, however there is however no room for complacency as organized crime still accounts for 50% of the total fraud value prosecuted in 2012.

Patel concluded: “Whilst it’s good news to see a drop in the value of fraud perpetrated organizations should not be fooled into thinking that they can drop their guard."