Global fraud problem expected to increase: KPMG survey

Business Wire, April 16, 1996

NEW YORK--(BUSINESS WIRE)--April 16, 1996--Over half of the companies surveyed from around the globe expect fraud to be an increasing problem for business, according to KPMG, one of the world's largest professional services organizations.

KPMG received responses from nearly 4,000 companies in 18 countries in North America, Europe, Australasia, Africa and Asia in its "International Fraud Report" survey.

Respondents from Africa appear to be most pessimistic about the problem, with 84 percent expecting fraud to increase. Eighty percent of Hong Kong respondents also expect an increase.

"Reasons for this seem to differ by region," says Joe Zier, National Director, Litigation & Forensic Services. "In North America and in Africa, respondents to our survey seemed to feel that the rise in white-collar crime would be due to worsening economic pressures. In other parts of the world such as Hong Kong, the Middle East and Asia, Europe and Australasia, a weakening of society's values was the prime cause."

"A third reason commonly given was the increasing sophistication of criminals -- not surprising in a world where these individuals are just as comfortable with cellular phone, international wire transfers and shell companies as they are with guns."

Companies worldwide realize that fraud is a serious problem, says Zier. "Over half of our respondents indicated that they were aware of at least one occurrence of fraud in their organization in the past year. This awareness was highest in Africa, where 79 percent of respondents were aware of fraud in their organizations."

Worldwide, KPMG found that the most common kinds of fraud by employees and company management were kickbacks, purchase of items for personal use, falsification of financial statements and misappropriation of cash.

Common fraud by external persons included false representation, patent infringement, false invoices and secret payments such as bribes and commissions.

Respondents indicated that the most common ways fraud was detected were through internal accounting controls and specific investigation by management. "We recommend that companies examine the kinds of risks to which they are exposed, and make sure that their internal control procedures are as effective as they can be," says Zier. "These steps are critical, particularly as the survey indicates that the most common way the fraud occurred was due to poor internal controls."

Regarding fraud prevention, many respondents indicated that they had already taken steps to secure their companies against fraud. The most common steps mentioned included training courses in fraud prevention and detection, increased budgets for internal audit, staff rotation policies, increased focus of senior management on the problem, and investigative reviews.

"All over the world, police services are being forced to cope with declining budgets and public pressure to deal with violent crime. Sometimes, they simply cannot afford the resources to deal with white-collar crime. As well, the increased sophistication of international criminals makes these investigations very difficult," he says.

"At the same time, companies are realizing that they cannot expect the taxpayer-funded police forces to investigate frauds that affect them internally. These trends mean that increasingly, companies are turning to private sector organizations to do the investigations on their behalf."

KPMG Peat Marwick LLP is the U.S. practice of KPMG, The Global Leader among professional services firms. Worldwide, KPMG has more than 6,000 partners and 76,000 professionals serving clients through 1,100 offices in 837 cities in 134 countries. In the U.S., KPMG partners and professionals deliver a wide range of value-added consulting, assurance and tax services in five markets: financial services; manufacturing, retailing and distribution; health care and life sciences; information, communications and entertainment; and public services.

CONTACT: KPMG Peat Marwick LLP, New York

George Ledwith, 212/909-5310

or

Fleishman-Hillard, New York

Alex Paidas, 212/265-9150