Executives Anticipate Rise in Fraud

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Nearly a third of corporate executives expect fraud or misconduct to rise in their organizations this year, according to a survey by KPMG.

Executives believe fraud and misconduct will increase in one of three categories: financial reporting, asset misappropriation, or as another illegal or unethical act. Seventy-one percent of the executives say they worry most about a loss of public trust if such problems are uncovered in their organizations.

Two-thirds of the respondents said combating fraud and misconduct might require more improvements in corporate internal control environments. Inadequate controls (66 percent) and management override of controls (47 percent) were viewed as the top enablers of fraud and misconduct, the survey found.

“Despite some very high-profile prosecutions and the pledges of rigorous enforcement by various government watchdogs, one of the country’s most troubled economic periods has created a perfect storm of increased pressures, new opportunities and dangerous rationalizations to allow business fraud and misconduct to occur,” said Richard H. Girgenti, national leader of KPMG’s forensic practice.

Sixty-five percent of the executives polled perceive fraudulent and illegal acts to be significant risks in their industries. Eight percent predicted fraudulent financial reporting would increase, while 66 percent said it would stay the same. One-quarter of respondents expect asset misappropriation to rise, and 60 percent said it would stay the same. Twenty percent said they expected other illegal or unethical acts to rise, while 60 percent said such acts would remain the same.

Sixty-seven percent of the executives said improvements were needed around communication and training, while 65 percent favored improvements in technology-driven techniques for auditing and monitoring, and 60 percent want fraud risk assessments improved.

Approximately 27 percent of respondents reported that their organizations did not fully understand how to conduct investigations, and at what point the board of directors should be alerted to potential concerns. In addition, 33 percent said they lacked protocols on how to remedy control breakdowns.

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