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| 2003
News and Press Releases |
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HEADLINE:
Companies Look Harder, Find More Fraud -- Internal Controls, Audits Supplant ''notification by employees.''
By: Stephen Taub
CFO.com. December 2, 2003
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EXCERPT: According to a new KPMG survey, 75 percent of executives said they have uncovered fraud in their organizations in the last year, compared with 62 percent of executives responding to a similar survey in 1998. Employee fraud was the most prevalent, reported the executives, but financial reporting and medical/insurance fraud were much more costly. In fact, the number of companies that said that they were uncovering financial reporting fraud more than doubled, to 7 percent in 2003 from 3 percent in 1998. The average cost? More than $250 million per episode. The overall cost of fraud is higher, too. In 2003, 36 percent of companies reported $1 million or more in costs due to fraud, compared with 21 percent in 1998. "Companies and their boards are more intent on uncovering fraud and misconduct as a direct result of corporate governance legislation and other mandates, including the Sarbanes-Oxley Act, put in place over the past two years," said Richard H. Girgenti, partner in charge of KPMG's forensic practice, in a statement. Yet surprisingly, 22 percent of the respondents said they do not plan to implement new controls, even though many companies must document and attest to their internal controls under Sarbanes-Oxley. Those companies may be at greater risk, said Girgenti, not only for fraud and misconduct, but also for "higher fraud costs and damage to the company reputation when incidents do occur." Even so, the survey found that management is generally taking a more active approach in detecting fraud. Internal controls are being used by 77 percent of companies - a sizable increase from the 51 percent in the survey five years ago. Internal audits, now being used by 65 percent of companies, were used at 43 percent at the time of the previous survey On the other hand, five years ago "notification by employees" was the most common means that companies used to uncover fraud. At the time it was cited by 58 percent of companies, compared with 63 percent today, KPMG noted. Companies are also taking more-decisive action when they detect fraud. For example, 64 percent brought civil or criminal charges, compared with just 37 percent five years ago, and 64 percent notified a regulatory or law enforcement agency, compared with 34 percent previously. Despite the increase in the detection of fraud, 43 percent of the executives surveyed predict a decrease in fraud incidents in the next 12 months; only 7 percent expect an increase.
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