Fraud at alarming levels - KPMG's latest GCC Fraud Survey 2008

Released today, the latest GCC-wide survey reveals that more than 40% of respondents believe that fraud and misconduct is a major problem when undertaking business in the region and 60% of respondents expect the level of fraud to increase in the next two years.

"The current financial crisis that the World is experiencing is creating an environment where the risk of fraud will increase as businesses come under pressure to show results. Likewise, individuals will also be tempted where costs are rising and income levels are flat" said Colin Lobo, Partner Forensic Services at KPMG.

"Perhaps because of the buoyant regional economies, management of fraud risk was not hitherto at the top of the agenda. In some other markets, radical measures have been taken as a result of massive individual frauds or because frauds have been identified during a downturn in the economy", added Mr Lobo.

"Increasingly, our clients are seeking to take a proactive approach to fraud risk management and to implement robust policies to help prevent, detect and respond to incidents of fraud in a responsible and measured manner", added Mr Lobo.

Robert Chandler, another of KPMG's forensic partners, stressed the need for management time to be spent focussing on understanding current characteristics related to fraud and misconduct in an organization in order to design a strong, specific fraud risk management strategy.

"Organizations in the region appear to have varying levels of understanding as regards the optimal framework for fraud management strategies. At times, they tend to be quite general rather than specific organisation/business focussed", added Chandler.

The KPMG survey calls for a commitment to tackle fraud incidents robustly in an environment underpinned by a culture of compliance, and an appreciation of the values of integrity and honesty.

Whilst the risk of fraud can never be eliminated, such an approach should help reduce fraud risk and fraud related incidents. The latter can be exceptionally costly affairs for business - among other things, in terms of financial value, reputation, and management time.

The survey indicates that frauds perpetrated by management and employees accounted for the bulk of fraud incidents and that internal controls were partially effective in helping to detect fraud.

While an aid to undertaking business, the advent of new technology also poses greater challenges for the detection of fraud and the need for internal controls to be reassessed and updated as the underlying nature of businesses develop.

The report also provides a snapshot of the perception of fraud in the region and an insight into the issues faced by organizations including how businesses are affected by fraud, the trend of fraudulent activities, financial impact, likely perpetrators of fraud, the impact of e-commerce enablers and the various measures that businesses are taking to prevent and detect fraud.

It also provides a typical profile of a fraudster and emerging issues including those relating to Intellectual Property and the US Foreign Corrupt Practices Act (and similar legislation in other countries) on organisations in the region.