ACL Blog – The Changing Landscape of Fraud


The Changing Landscape of Fraud

By Peter Millar

I recently read the third annual Kroll Global Fraud Report, 2009/10. This survey was conducted by Kroll in conjunction with the Economist Intelligence Unit and it surveyed over 700 senior executives worldwide. Since there has been so much talk lately about the likely increase in fraudulent activity during an economic downturn, I was really keen to see the results of this survey.

Interestingly enough, the reported incidence of fraud was almost identical to that of last year – before the effects of the global recession had really hit. The average loss by organization did, in fact increase, but only slightly – from $8.2 million to $8.8 million.

What did change however is where fraud occurred and how the downturn has heightened the risk of fraud in certain industries. Notable increases in the average amount lost to fraud over the previous 3 years were evident in: a) Financial services, b) Healthcare, pharmaceuticals and biotechnology, c) Retail and, d) Travel, leisure and transportation. This represents a noticeable change in the overall fraud landscape and something that fraud investigators, internal auditors and other assurance professionals should be aware of.

Not only was there a change in which industries are subject to increased fraud risk, but also in what business areas fraud is being perpetrated. The study recognized that the downturn has heightened the risk of fraud in organizations in specific areas. Of note was the area of pay stringency – owing to declining revenues, cost cutting etc – provided additional motives for fraudulent behaviour. And while different sectors are vulnerable to different threats, the results reported general increases in: a) the theft of physical assets or stock and b) vendor, supplier or procurement fraud. Many of the other threats from fraud remained consistent over time. Understandably, the threat of fraud declined in importance for those areas related to organizational growth – i.e. entry into new markets, joint ventures and partnerships.

The survey highlighted a disturbing fact about how many perceive the risk of fraud. The results showed no change or decline in the percentage of those surveyed who thought that fraud was much more prevalent, slightly more prevalent, about the same or slightly less prevalent. The only category where there was an increase was where people thought that fraud was much less prevalent! This is in stark contrast to the KPMG Fraud Survey 2009. That report noted that 32% of executives expected fraud was going to increase over the next 12 months.

The long and short of it is that organizations and those responsible for fraud detection need to:

  • Recognize that the fraud landscape has changed
  • Stand back and make a fresh fraud risk assessment so they are safeguarding their organizations from today’s threats, not those of previous years
  • Look to technology to help them find indicators of fraud in their transactional data and help them focus their anti-fraud activities

Find out more: ACL Blog

Sunday, November 1, 2009 In: Hot Topics Comments (None)

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