On SBT: http://www.businesstimes.com.sg/sub/news/story/0,4574,445683,00.html?
- Published July 1, 2011
Fraud is a clear and present danger: KPMG
Survey shows it has risen in companies since global crisis
By MICHELLE QUAH
(SINGAPORE) The average number of fraud incidents per company in Singapore has more than doubled since the global financial crisis, while the estimated total cost of these incidents has also risen sharply.
The KPMG Singapore Fraud Survey report 2011 released yesterday showed that the average number of incidents reported per organisation among those hit by fraud was 9.0 in 2011, compared to 3.8 incidents in 2008.
One in five survey respondents said they were aware of at least one fraud incident within their company over the past two years - a similar proportion to KPMG's previous survey reports in 2004 and 2008.
The total estimated cost of these incidents was $6.5 million in 2011, up from $5.3 million three years ago.
And, according to the survey, internal sources remain the major fraud threat.
'The survey findings that 17 per cent of fraud is carried out by senior members of a company is of great concern,' said Bob Yap, head of Forensic at KPMG in Singapore. 'These individuals set the ethical tone for the organisation and are in the position to do the greatest harm.'
The survey also found that 46 per cent of fraud incidents were perpetrated by employees - making it a total of 63 per cent of frauds being 'inside jobs'.
Mr Yap explains the finding: 'This report largely spans the period of the global economic crisis, where companies faced the greatest economic turmoil in recent years. One effect is that it led to an increase in retrenchment and resignations and employee misconduct frequently comes to light only when the employees leave their organisation.'
Many will remember the $12-million fraud perpetrated by two former employees of the Singapore Land Authority, which was only discovered after the two men had left the employment of the statutory board.
KPMG, in its survey, found that the three main causes of fraud were unfamiliarity with red flags of fraud (59 per cent), weakness in IT security (56 per cent), and weakness of management or board oversight (50 per cent).
Yet, despite this, only 31 per cent of companies said they have conducted fraud awareness training for staff or management. A slightly larger proportion (37 per cent) said they had an anti-bribery and corruption compliance programme in place, while 62 per cent said they had no plans to design and implement a fraud incident response plan.
Mr Yap said: 'These (causes of fraud) relate to weak preventive measures on the part of the victims, rather than any particular ingenuity or sophistication on the part of the perpetrators. The fact that internal controls continue to fail or are being overridden suggests that companies should pay greater attention to internal threats. Staff need to understand their role in fraud prevention if they are to be an effective component of an organisation's defences.'
The survey also, for the first time, covered companies' approach to bribery and corruption. And it showed that bribery and corruption compliance is a challenge: 57 per cent of respondents were unfamiliar with Singapore's own Prevention of Corruption Act, while 85 per cent were unfamiliar with the UK's new Bribery Act 2010.
'Many anti-bribery and corruption enactments have extensive extraterritorial reach and draconian sanctions, which means they bring significant risks to companies that trade abroad and have any connection with either the US or the UK,' Mr Yap said.
He said companies should: ensure an ethical tone from the top and fraud training to help create a culture of fraud prevention and detection; have risk assessments to ensure the continuing effectiveness of controls, as well as a fraud response policy to help a company respond to fraud in a swift and effective manner while minimising damage.
'The total elimination of fraud will never be possible. However, companies can go a long way towards protecting themselves by ensuring that fraud risk management is embedded in management and governance processes and spread effectively throughout the organisation,' Mr Yap concluded.
KPMG's 2011 survey covered directors and senior executives across a broad range of industries and from companies listed on the Singapore Exchange.
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9 comments:
Can we blame this on inflation (people going for big bucks) and technology advancement (no more guli game but ipad and stuff like that contain more violent game??)
Or as a parents, we dont have time to monitor our kids and potentially growing more crooks in the future??
The survey will only show the cost of incident going up year by year. Our internal value really rotting....are we going the wrong direction, really need a self reflection.
i just join a start up co. and horros of horrors discover cheque frauds la, misappropriation of funds la, "missing" documents/vouchers la....(and this is only a small co. with less than 5 staff)
Weekness? shareholders trust the directors and staff too much (given autonomous power) to the point they abuse their position. Tarnish the image for malaysians as the shareholders are foreigners.
Moo, someone speaks justice for the auditors
Bronte Capital 12 Jul 2011
"China frauds: In (partial) defense of the auditors "
Posted: 12 Jul 2011 02:49 AM PDT
The most common question I get asked about Chinese frauds by journalists (and even more by class action lawyers) is where were the auditors?
The class action lawyers are particularly interested in that because it is going to be very hard for instance to collect from China Media Express or Longtop (both probably overwhelmingly fraudulent) but it will be relatively easy to collect from Deloitte who audited both. (That presumes that liability can be attached to the auditor...)
Deloitte audited Longtop for six years giving a clean bill each time before the amazing auditor resignation announcement. Surely - or so the journos and class action lawyers say - they were negligent in their previous (clean) audit statements?
Starr Asia (Hank Greenberg's vehicle) is suing Deloitte for their audit of China Media Express.
The class action lawyers (and presumably Hank Greenberg) will not like my answer. I have told the class action lawyers that they can put me on the stand as a witness if they want - but my testimony will be supportive of Deloitte. That answer surprises them. But here goes:
Imagine you were auditing China Media Express. This is a company that claimed to have video screens showing adverts on twenty thousand buses. Buses by their nature (they move) would be scattered all over China. You can't physically audit the buses.
They sell adverts to maybe 15 advertising agencies. The company gives you - the auditor - contacts at all of those agencies. You ring the contacts. They confirm the contracts, the receivables and the like.
None of this would have spotted the fraud. After all the buses are impossible to audit and the particular advertising agencies are say 15 out of 3000 in China.
The way that you would really conduct this audit is match the business against bank statements. The company claimed roughly 30 million dollars per quarter of profit. An auditor verifies a sample of transactions and verifies the total. Finally they verify the cash balance.
If the bank statements contained verification of all your sampled transactions and in aggregate showed 300 thousand flowing into the accounts per day and 170 million in accumulated cash then you would have verified the business.
To be thorough the auditor would normally get the bank statements from the bank and not from the company. After all the company could provide you fake statements - it is unlikely the bank would.
Audit is a process. If you (a) sample the requisite number of transactions and (b) verify the key totals with creditors and banks you have done your duty. Indeed provided you actually verified the bank statements with a major (and presumably reputable) bank then you have met the audit standard.
The shock of Longtop and China Media Express is that the banks appear to have been in on what appears to be fraud. In both cases Deloitte went to the bank head office (not the local branch) and double-checked the bank statements. And in both cases this caused the apparent fraud to come crashing down.
The critical revelation is that the bank was in on the scam. If the bank is in on the scam it is possible for the auditor to conduct all the standard tests and do all their duty and sign-off completely dodgy accounts in good faith.
And when a fraud is exposed it is possible that no liability accrues to the auditor.
I can point to (several) examples where I think auditors are culpable. I can think of several audit firms that should cease to exist when the China frauds are all exposed. But those individual cases are not the rule.
John
PS. If this level of corruption is pervasive in Chinese banks then we are all looking in the wrong place for the next crisis. The next crisis comes from China.
Ah Wai: Thanks! That's a very interesting read! :)
Moo,
Clarification. The last para in the Bronte Capital article was not written by me. The talk is simply too big for me :)
"PS. If this level of corruption is pervasive in Chinese banks then we are all looking in the wrong place for the next crisis. The next crisis comes from China."
Ah Wai: Did they really solve that 'old' crisis?
:P
Moo,
I'm slow. What is 'that' 'old crisis' you meant?
Old as in most recent.... :P
Moo,if I got the incorrect answer. Don't laugh at me, can ah?
Ah Wai wants face la :)
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